345Determining Economic Loss Due to Misrepresentations on the Stock Market Using Forward Casting

Pijls Arnoud C.W.
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Pijls Arnoud C.W.: PhD, LLM and MSc is a Professor of European and Comparative Financial Law at Radboud University Nijmegen; Nijmegen, Netherlands

European Company and Financial Law Review, 2024, vol. 21, issue 3-4, 345-366

Abstract: Forward casting is a method that has been developed in U. S. securities fraud class actions to establish the (amount of) economic loss that investors suffer due to material misrepresentations on the stock market. More specifically, forward casting can be used to construct the hypothetical price path of a specific stock, which is the price path of that stock in the hypothetical situation where no misrepresentations were made. This article will explain how forward casting is applied in, respectively, situations where the misrepresentation consists of a single misstatement and situations where the misrepresentation consists of several successive misstatements. In the latter situations, one of the complications is how to incorporate into the analysis the fact that future market expectations regarding the stock (price) would have evolved differently (as compared to how these expectations have actually evolved) if, on all occasions, correct and complete – rather than misleading – information had been disclosed. It will be explained how to approach this complication and how – by using the so-called ‘analyst forecast revision coefficient’ – the evolvement of market expectations can be reconstructed for the hypothetical situation without misrepresentation. Furthermore, several advantages and disadvantages of forward casting compared to back casting will be discussed.

Date: 2024
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DOI: 10.1515/ecfr-2024-0009

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