Kill Cammer: Securities Litigation Without Junk Science

Securities litigation is a hotbed of junk science concerning market efficiency. This Article explains why and suggests a way out. In its 1988 decision in Basic v. Levinson, the Supreme Court endorsed the fraud on the market presumption for securities traded in an efficient market. Faced with the task of determining market efficiency, courts throughout the nation embraced the ad hoc speculations of a first-mover district court that proclaimed, in Cammer v. Bloom, how to allege (and presumably prove) facts that would do just that. The Cammer court’s analysis did not rely on financial economics for its notions, but instead regurgitated the assertions of a single plaintiff’s expert affidavit—from a securities law professor, not a financial economist—and a securities law treatise equally uninformed by the relevant field. The result has been thirty years of junk science in securities adjudication. This Article traces the development of the fraud on the market theory from its pre-efficient-markets-hypothesis roots through a brief “gilding the lily” phase where an appeal to social science results on market efficiency was only an ancillary, bolstering argument for already-sufficient precedent for the fraud on the market presumption, to the requirement that litigants plead and prove efficiency using indicia with no support in financial economics. The way out of this embarrassing state of affairs is to return to the roots of fraud on the market in the non-technical notion of “a free and open public market” that inquires only whether the market for the security at issue is open to active buyers and sellers and is not subject to substantial seller lockups or bans on short selling. It is reasonable to presume that prices in such free and open public markets can be distorted by fraud, a presumption that is then rebuttable by establishing (1) that the alleged fraud in fact had no price impact; (2) that there are substantial limits on the ability of active investors to buy and sell in the market, such that the market is not a “free and open public” one; or (3) that the plaintiff would have made their purchase or sale at the affected price even knowing of the falsity of the alleged misrepresentation. This formulation is consistent with all controlling Supreme Court opinions

Event Studies in Securities Litigation: Low Power, Confounding Effects, and Bias

An event study is a statistical method for determining whether some event—such as the announcement of earnings or the announcement of a proposed merger—is associated with a statistically significant change in the price of a company’s stock. The main inputs to an event study are historical stock returns for the companies under study, benchmark returns like the return to the broader stock market, and standard statistical tests like t-tests that are used to test for statistical significance. In securities litigation and regulation, event studies are used primarily to detect the impact of disclosures of alleged fraud on the price of a single traded security. But are event studies in securities litigation reliable? What is interesting about the use of event studies in securities litigation is that the methodology litigants use in court differs from the methodology that economists apply in their research. With few exceptions, securities litigation event studies are single-firm event studies, while almost all academic research event studies are multi-firm event studies. Multi-firm event studies are generally accepted in financial economics research, and peer-reviewed journals contain them by the hundreds. By contrast, single-firm event studies—the mainstay of modern securities fraud litigation—are almost nonexistent in peer-reviewed journals. Importing a methodology that economists developed for use with multiple firms into a single-firm context creates three substantial difficulties. First, single-firm event studies suffer from a severe signal-to-noise problem in that they lack statistical power to detect price impacts unless the price impacts are quite large. Inattention to statistical power lowers the deterrent effect of the securities laws by giving a “free pass” to some economically meaningful price impacts and may encourage more small- and mid-scale fraud than is socially optimal given the costs of litigation. Second, single-firm event studies do not average away confounding effects. While this problem is well known, some courts have unrealistic expectations of litigants’ ability to quantitatively decompose observed price impacts into those caused by alleged fraud and those unrelated to alleged fraud. Third, low statistical power and confounding effects combine to generate sizeable upward bias in detected price impacts and therefore in damages. To improve the accuracy of adjudication in securities litigation, we suggest that litigants report the statistical power of their event studies, that courts allow litigants flexibility to deal with the problem of confounding effects, and that courts and litigants consider the possibility of upward bias in the detection of price impacts and the estimation of damages

The Remarkable Mid-Infrared Jet of Massive Young Stellar Object G35.20-0.74

The young massive stellar object G35.20-0.74 was observed in the mid-infrared using T-ReCS on Gemini South. Previous observations have shown that the near infrared emission has a fan-like morphology that is consistent with emission from the northern lobe of a bipolar radio jet known to be associated with this source. Mid-infrared observations presented in this paper show a monopolar jet-like morphology as well, and it is argued that the mid-infrared emission observed is dominated by thermal continuum emission from dust. The mid-infrared emission nearest the central stellar source is believed to be directly heated dust on the walls of the outflow cavity. The hydroxyl, water, and methanol masers associated with G35.20-0.74 are spatially located along these mid-infrared cavity walls. Narrow jet or outflow cavities such as this may also be the locations of the linear distribution of methanol masers that are found associated with massive young stellar objects. The fact that G35.20-0.74 has mid-infrared emission that is dominated by the outflow, rather than disk emission, is a caution to those that consider mid-infrared emission from young stellar objects as only coming from circumstellar disks.Comment: Accepted for publication in ApJ Letters; 4 pages; 2 figures; a version with full resolution images is available here: http://www.ctio.noao.edu/~debuizer

Volume Abstract

This volume presents research conducted at the convergence of two projects: the first a survey, inventory, and assessment of historic sites located within the boundaries of the Finger Lakes National Forest, a small national forest located in central New York; the second a pedagogical experiment conducted in the spring of 1998, the goal of which was to assess how a rather typical CRM project could be used to train graduate students in archaeology in manipulating Geographic Information Systems (GIS) technology to control and interpret archaeological data. This convergence resulted in the construction of a GIS-based data management system for historic-period cultural resources in the Finger Lakes National Forest. The final product of this project is an integrated GIS database that can now be used by the Forest Service to manage data concerning the historic sites so far identified in the Finger Lakes National Forest. This volume describes how this was accomplished and suggests how GIS can be used by historical archaeologists to control and interpret data on a regional scale. This volume is organized to demonstrate how a regional archaeological GIS database was constructed and how the database was used to interpret the historical and archaeological record of the abandoned farmstead community once located on Burnt Hill, the southern extent of the Hector Backbone, a ridge located within the Finger Lakes National Forest. Following an introduction outlining the project and defining what CIS is and how it was used in this project, Chapter 2 by Patrick Heaton presents an overview of the Euroamerican settlement history of the Hector Backbone. Heaton follows this presentation in Chapter 3 with an account of how archival materials were used to interpret the changing nature of the agricultural political economy of rural New York in the 19th and early-20th centuries. In Chapter 4, Mark Smith and James Boyle use archaeological evidence to analyze the layout of farmsteads in the Burnt Hill Study Area. Chapter 5, by Karen Wehner and Karen Holmberg, describes the various ways historic map data were used to analyze change in the rural settlement pattern of the Burnt Hill Study Area. In Chapter 6, Janet Six, Patrick Heaton, Susan Malin-Boyce, and James Delle analyze the artifacts recovered during the surface collections of sites located in project area. The final substantive chapter, by Thomas Cuddy, explores how one of ArcView\u27s modules, the Spatial Analyst, can be used to help interpret various kinds of archaeological data. The appendix, by Tom Cuddy, discusses the how-to element of the project, introducing those elements of ArcView integrated into our project and using our example to suggest guidelines on how to create a CIS project in ArcView. One goal of the appendix is to familiarize readers with GIS and ArcView terminology as well as the various elements of the application discussed throughout the volume

Reply to Comment by J. Zhang and N. Makris on “Estimates of the Ground Accelerations at Point Reyes Station during the 1906 San Francisco Earthquake” by A. Anooshehpoor, T. H. Heaton, B. Shi, and J. N. Brune

Contrary to the comments by Zhang and Makris (hereafter, ZM), our equations of motion governing the rocking response of a rectangular block subjected to a full-sine acceleration pulse are correct. Therefore, the first part of ZM's discussion, which is based primarily upon the assumption that the equations of motion in our article were incorrect, is inappropriate. In the second part of the discussion, ZM present new results for mode 2, toppling without impact. We did not consider this mode because it was not relevant to the Point Reyes train, which by eyewitness accounts, had overturned after experiencing one impact. However, as explained in this reply, toppling with no impact is never the minimum condition for overturning, and would in general involve very large horizontal accelerations, especially at frequencies where mode 2 is the only overturning mode

Grasses and Legumes for Cellulosic Bioenergy

Human life has depended on renewable sources of bioenergy for many thousands of years, since the time humans fi rst learned to control fi re and utilize wood as the earliest source of bioenergy. The exploitation of forage crops constituted the next major technological breakthrough in renewable bioenergy, when our ancestors began to domesticate livestock about 6000 years ago. Horses, cattle, oxen, water buffalo, and camels have long been used as sources of mechanical and chemical energy. They perform tillage for crop production, provide leverage to collect and transport construction materials, supply transportation for trade and migratory routes, and create manure that is used to cook meals and heat homes. Forage crops—many of which form the basis of Grass: The 1948 Yearbook of Agriculture (Stefferud, 1948), as well as the other chapters of this volume—have composed the principal or only diet of these draft animals since the dawn of agriculture