The Use of Event Studies in Disputes and Enforcement

Tue Jan 04 15:24:38 EST 2011
By Robert Patton with former NERA Senior Consultant Susanne Toft

This article from Commercial Dispute Resolution explains how the event study is an important part of the economic expert's toolkit. Expert evidence in economics and finance-related disputes can achieve rigor and objectivity by employing methodologies that have been widely applied and accepted in those fields. One such methodology is the event study, which is used to measure the effect of an economic event on the price of a security. The researcher observes how the price of a security moved during a defined window of time around a given event, and isolates the effect of the event from other factors that might also influence the price.

The technique, which is widely used in shareholder class actions and other litigation in the US, is increasingly being applied elsewhere, including Australia, Canada, and Europe. In this article, the authors describe the many ways event studies can be used and provide an overview of the event study methodology.