An event study analyzes the effects of economic events on
security prices. In efficient markets where prices reflect all
publicly available information and expected cash flows, any new
value-relevant information that impacts investors' assessment
of future cash flows will be reflected immediately.1
Therefore, one can measure the economic effect of an event using
prices over a relatively short time period.2
After the Supreme Court endorsed the fraud-on-the-market
doctrine in Basic v. Levinson3 in 1988, event
studies became widely used in securities litigation to assess
claims of loss causation as well as evaluate the
"materiality" of alleged misstatements or fraudulently
omitted information.4 In the recent Halliburton II
decision (Halliburton Co. v. Erica P. John Fund, Inc., No.
13-317) the Supreme Court explicitly contemplated the use of event
studies by defendants in class certification to rebut the
presumption of reliance:
