Stock Price Crashes and 10b-5 Damages: A Legal, Economic, and Policy Analysis

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Author

Baruch Lev, Meiring de Villiers

Entry type

article

Abstract

Sharp stock price declines, or crashes, occurring upon the release of negative corporate information often trigger shareholder litigation under Securities and Exchange Commission rule 10b-5. The prevailing method for calculating damages in these cases assumes that the stock price immediately following the disclosure reflects the security\'s \"true value.\" Plaintiffs use this value to calculate their losses during th entire period in which fraud allegedly inflated the share price. In this article, Professor Leva nd Mr. de Villiers argue that a \"crash price\" is an unreliable, doctrinally erroneous, and economically unsound measure of damages. They propose alternative methods of damage calculation that extract the crash component froma postdisclosure price and yield a more accurate and fairer estimate of a stock\'s true value.

URL

http://www.jstor.org/stable/1229220?seq=31

Institution

University of California at Berkeley

Journal

Stanford Law Review

Key alpha

Lev

Pages

7-37

School

Haas School of Business, Boalt Hall School of Law

Volume

47:7

Publication Date

2001-01-01

Keywords

stock price, policy, damage calculation

Language

English

Subject

Stock price crash damages and calculations

BibTex-formatted data

To refer to this entry, you may select and copy the text below and paste it into your BibTex document. Note that the text may not contain all macros that BibTex supports.

@Article{ Lev,
	title = "Stock Price Crashes and 10b-5 Damages: A Legal, Economic, and Policy Analysis",
	author = "Baruch Lev, Meiring de Villiers",
	institution = "University of California at Berkeley",
	journal = "Stanford Law Review",
	pages = "7-37",
	school = "Haas School of Business, Boalt Hall School of Law",
	volume = "47:7",
	abstract = "Sharp stock price declines, or crashes, occurring upon the release of negative corporate information often trigger shareholder litigation under Securities and Exchange Commission rule 10b-5.  The prevailing method for calculating damages in these cases assumes that the stock price immediately following the disclosure reflects the security\'s \"true value.\" Plaintiffs use this value to calculate their losses during th entire period in which fraud allegedly inflated the share price. In this article, Professor Leva nd Mr. de Villiers argue that a \"crash price\" is an unreliable, doctrinally erroneous, and economically unsound measure of damages. They propose alternative methods of damage calculation that extract the crash component froma postdisclosure price and yield a more accurate and fairer estimate of a stock\'s true value.",
	keywords = "stock price, policy, damage calculation",
	language = "English",
	subject = "Stock price crash damages and calculations",
	url = "http://www.jstor.org/stable/1229220?seq=31",
}