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Full-Text Articles in Securities Law
The Trouble With Basic: Price Distortion After Halliburton, Jill E. Fisch
The Trouble With Basic: Price Distortion After Halliburton, Jill E. Fisch
All Faculty Scholarship
Many commentators credit the Supreme Court’s decision in Basic, Inc. v. Levinson, which allowed courts to presume reliance rather than requiring individualized proof, with spawning a vast industry of private securities fraud litigation. Today, the validity of Basic’s holding has come under attack as scholars have raised questions about the extent to which the capital markets are efficient. In truth, both these views are overstated. Basic’s adoption of the Fraud on the Market presumption reflected a retreat from prevailing lower court recognition that the application of a reliance requirement was inappropriate in the context of impersonal public …
Behavioral Approaches To Corporate Law, Donald C. Langevoort
Behavioral Approaches To Corporate Law, Donald C. Langevoort
Georgetown Law Faculty Publications and Other Works
This chapter reviews the challenges associated with developing a plausible theory of why psychological "heuristics and biases" might persist in high-stakes business settings. Specific attention is given to issues of loyalty on corporate boards, behavioral finance, and corporate cultures.
Deeply Persistently Conflicted: Credit Rating Agencies In The Current Regulatory Environment, Timothy E. Lynch
Deeply Persistently Conflicted: Credit Rating Agencies In The Current Regulatory Environment, Timothy E. Lynch
Faculty Works
Credit rating agencies have a pervasive and potentially devastating influence on the financial well-being of the public. Yet, despite the recent passage of the Credit Rating Agency Reform Act, credit rating agencies enjoy a relative lack of regulatory oversight. One explanation for this lack of oversight has been the appeal of a self-regulating approach to credit rating agencies that claim to rely deeply on their reputational standing within the financial world. There are strong arguments for doubting this approach, including the conflicting self-interest of credit rating agencies whose profits are gained or lost depending on their ability to lure the …
Overvalued Equity And The Case For An Asymmetric Insider Trading Regime, Thom Lambert
Overvalued Equity And The Case For An Asymmetric Insider Trading Regime, Thom Lambert
Faculty Publications
This article argues for an asymmetric insider trading policy under which insider trading that decreases the price of an overvalued stock is generally permitted, but insider trading that increases the price of an undervalued stock is generally prohibited. Concluding that the net investor benefits of price-decreasing insider trading exceed those of price-enhancing insider trading, the article argues that an asymmetric insider trading regime likely represents the bargain that shareholders and corporate managers would strike if they were legally and practically able to negotiate an insider trading policy. Current insider trading doctrine would permit regulators to impose such an asymmetric insider …
Mome In Hindsight, Ronald J. Gilson, Reinier Kraakman
Mome In Hindsight, Ronald J. Gilson, Reinier Kraakman
Faculty Scholarship
Two decades ago, the Virginia Law Review published our article “The Mechanisms of Market Efficiency” (MOME), in which we tried to discern the institutional underpinnings of financial market efficiency. We concluded that the level of market efficiency with respect to a particular fact depends on which of several market mechanisms — universally informed trading, professionally informed trading, derivatively informed trading, and uninformed trading (each of which we explain below) — operates to reflect that fact in market price. Which mechanism is operative, in turn, depends on how widely the fact is distributed among traders, which, I turn, depends on the …
The Mechanisms Of Market Efficiency Twenty Years Later: The Hindsight Bias, Ronald J. Gilson, Reinier Kraakman
The Mechanisms Of Market Efficiency Twenty Years Later: The Hindsight Bias, Ronald J. Gilson, Reinier Kraakman
Faculty Scholarship
Twenty years ago we published a paper, "The Mechanisms of Market Efficiency," that sought to describe the institutional underpinnings of price formation in the securities market. Since that time, financial economics has moved forward on many fronts. The sub-discipline of behavioral finance has struggled to bring yet more descriptive realism to the study of financial markets. Two important questions are (1) how much has this new discipline changed our understanding of the efficiency and nature of the institutional mechanisms that set price in financial markets; and (2) how far does this discipline carry novel implications for the regulation of financial …