March 06, 2014
Halliburton II: Follow Up From Jill Fisch
Posted by David Zaring

The following post comes to us from Jill Fisch, the Perry Golkin Professor of Law at the University of Pennsylvania:

Just a few more thoughts about the event studies and question II in Halliburton.  As I noted in my prior post, the level of discussion on the feasibility and mechanics of event studies was disappointing.  I have explained the limitations with using event studies to address the question of price impact or price distortion for purposes of Basic.  See Jill E. Fisch, The Trouble with Basic: Price Distortion after Halliburton, 90 Wash. U. L. Rev. 895, 919-21 (2013).  In particular, a statement or series of statements that falsely confirm existing market expectations will not move stock price at the time it is made.  An event study is incapable of measuring the effect that a counterfactual accurate disclosure would have had on the market, had it been made.  A substantial number of securities fraud lawsuits present exactly this factual context.  Basic itself was such a case.  Basic denied the existence of merger negotiations for over a year during which time it was, in fact, involved in such negotiations.  Basic’s lies had little or no effect on the stock price (indeed, the price rose after two of the three denials).  When the merger was subsequently announced, the stock price rose dramatically.  The argument in Basic was that, had the merger negotiations been accurately disclosed at an earlier time, the stock price would have been higher.  What the stock price would have been, in October 1977, if Basic had not lied, is a question that event study methodology cannot answer.  This, however, is the test that Professors Henderson and Pritchard seek to have the Court impose through a requirement that plaintiffs prove price impact at class certification. 

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