Damages analysis is of critical importance in securities class actions. In addition to playing an integral role in the merits phase and any settlement discussions, U.S. Supreme Court decisions in 2013 make damages analysis an important part of class certification proceedings as well.
The threshold for plaintiffs to establish a properly executed damages methodology may not be as high at the class certification stage as at later points in the proceedings. However, it is clear that the proposed damages methodology cannot be arbitrary—it must be closely linked to the allegations at issue—thus accelerating when damages analysis can become relevant in securities class action proceedings.
This article, originally published in 2014, reexamines the framework for estimating recoverable damages in Rule 10b-5 securities class actions. It discusses the relevant legal background, the role of a financial economist in estimating recoverable damages, and the use of event studies in damages estimation—what event studies can and cannot do.
The views expressed herein do not necessarily represent the views of Cornerstone Research.