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INDICES
OF SECURITIES CLASS ACTION FILINGS
Indices of securities
class action filings characterize the intensity of securities litigation
activity through time. The indices incorporate market information about
declines in stock prices over selected portions of class periods as proxies for
the potential loss of defendants and their insurance carriers.
We group multiple
litigation processes corresponding to the same underlying event (allegations of
fraud resulting in stock price inflation and subsequent decline, etc) in one
report card that we refer to as a "filing." We define the class period of the
filing as the class period mentioned in the First Identified Complaint
(according to the information in the Clearinghouse database). In most cases
this class period corresponds to the first filed complaint or to the complaint
that shows the most extensive class period.
There is no rational
reason to believe that these declines are a credible measures of the damages
that could be awarded in any action. The measures are instead a metric that
describes the valuations changes in companies that have been sued without
regard to the reasons for the decline. The measures can thus be taken as a
rough approximation of the extent to which plaintiffs have sought to allege
that gross market cap declines are correlated with (if not caused by) alleged
frauds.
For each filing we
calculate two measures of decline in the market capitalization of traded common
stock:
A) Decline from
the trading day when market capitalization reached its maximum during the class
period to the trading day immediately following the end of the class period. We
use the term "maximum dollar loss" as shorthand for this number.
B) Decline from
the trading day immediately preceding the end of class period to the trading
day immediately following the end of the class period. We use the term
"disclosure dollar loss" as shorthand for this number.
The indices exclude IPO
Allocation, Analyst, and Mutual Fund Filings. The following six indices
describe litigation activity:
Class Action Filings Index (CAF Index™)
is the count of class action filings during a period.
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