There have been two common methods by which experts in securities fraud actions have reached opinions about the materiality of new information provided to the market: (1) a subjective assessment of the relevant information, in which the expert’s conclusion is often based on the general knowledge and experience of the expert; and (2) a statistical analysis of the movements in the price of a security when the misrepresentation or a correction of the misrepresentation is revealed to the market, a technique known as an “event study.”

While recognizing that the event study methodology has become the gold standard for those occasions where it can be employed, this working paper by NERA Senior Vice President Dr. David Tabak seeks to shed light on a different technique—quantitative content analysis—that can reduce or eliminate the subjectivity in an expert’s assessment of information and be helpful as a supplement to or a substitute for an event study for those cases where an event study is not sufficient or even possible. Through an examination of the academic literature and case studies, this paper shows how the use of quantitative content analysis can be used to provide evidence for or against a claim of materiality, as appropriate, and to assess the relative importance of different pieces of information.

On 14 May 2014, this paper was cited by the First Circuit in Bricklayers & Trowel Trades Int'l Pension Fund v. Credit Suisse First Boston, where the court upheld the exclusion of the testimony of an economic expert in part for failing to account for confounding information in his analysis of stock price reactions. The Court noted that the expert “could also have used content analysis” and cited to Dr. Tabak’s paper.