Finance Seminar: Allan Kleidon
What Constitutes Sufficient Evidence of Market Efficiency for Fraud-on-the-Market Reliance?
Securities class action litigation, in both Australia and the US, often involves allegations of false or misleading information disclosure and a subsequent stock price decline caused when the relevant information was ultimately disclosed. Such allegations require class members to demonstrate reliance on the allegedly misleading disclosures. This requirement has created a link between the law and financial economics.
Since many class members do not rely directly on the allegedly misleading disclosure—for example, how many shareholders read regulatory filings?—the law in both Australia and the US accepts indirect reliance if the stock trades in an efficient market. The US has recognized this “fraud-on-the-market” theory of reliance since the 1988 Supreme Court decision in Basic v. Levinson, which creates a rebuttable presumption of reliance if plaintiffs demonstrate that the security trades in an efficient market. In such a market, it is reasonable for security holders to rely on the efficient market to incorporate new value relevant information rapidly and fully, which obviates the need for individual assessment of such information.
This case study examines what constitutes sufficient evidence for plaintiffs to establish market efficiency in such cases, and highlights circumstances under which courts have found that plaintiffs have not presented sufficient evidence of market efficiency to invoke a presumption of reliance. In the US context, absent this presumption, the putative class will not be certified because individualized issues of reliance would likely overwhelm common issues. In Australia, the class will not satisfy the element of reliance at the merits stage.
Allan Kleidon provides expert testimony on securities and company valuation, securities markets, industry analysis, and damages analysis. His experience includes investment banking, stock and options markets, derivatives, savings and loan institutions, and high-technology companies.
He has testified in several prominent securities cases, including State of West Virginia v. Morgan Stanley, Seagate Technology II, and JDS Uniphase. He has been retained as an expert in market microstructure in a number of large class-action and antitrust litigations, including the NASDAQ and options markets antitrust litigations. His recent research has focused on the behavior of domestic and overseas securities markets.
Dr. Kleidon is the author of numerous publications, and he has served as associate editor of the Journal of Finance and the Journal of Financial Economics. He is an Honorary Professor in the School of Business at the University of Queensland in Australia, and has taught courses in finance and econometrics at Stanford University in the business and law schools; the University of California, Berkeley; the University of Chicago; and the University of Queensland.