| This study employs the informational implications of efficient financial markets to measure the extent to which lawsuit outcomes can be anticipated using publicly available information alone. It examines whether the outcomes of lawsuits between publicly traded corporations can be predicted as early as the time the suit is filed, and as late as the day before the decision is announced. Event study methodology is used to determine whether stock prices reflect any revelation of new information on the date of the respective events.The study finds that both plaintiffs and defendants sustain negative abnormal returns at the time suits are filed, with no significant difference between litigants that ultimately win their cases and those that ultimately lose. At resolution time, however, significant abnormal returns are observed prevailing parties experience positive returns, while losing parties exhibit negative returns.These results support the notion that markets form unbiased estimates of the financial impacts of lawsuits, responding in the appropriate direction when the results are realized. They also imply that the outcomes of lawsuits cannot be predicted with publicly available information, even after much of the parties' private information is revealed during trial. |
