Testing For Materiality In Volatile Markets

Law360 (January 13, 2010, 1:47 PM EST) -- In securities litigation, cases sometimes hinge on whether information that was omitted or misstated was important to a reasonable investor.

Financial experts are often then called upon to examine whether a news announcement that corrected information that was previously misrepresented had a material effect on the price of a company's stock.

To address the issue of materiality, experts and courts often rely on event studies (see for instance In re Executive Telecard Ltd. Securities Litigation, 979 F.Supp. 1021 (S.D.N.Y. 1997) and In re Imperial Credit Industries Inc. Securities Litigation, 2003 WL 1563084 (C.D.Cal. 2003).

The results of these event studies are...

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