345Determining Economic Loss Due to Misrepresentations on the Stock Market Using Forward Casting
-
Arnoud C.W. Pijls
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.
Note
This article is partly based on Section 8.4.4 of his doctoral thesis ‘Misleading Reports on Stock Markets. Issues of Causation and Damages’ (written in Dutch). I would like to express my sincere gratitude for the excellent remarks on a previous version of this article received from Mathijs Giltjes, Matthias Haentjens, Maarten Kroeze, Siewert Lindenbergh and Sam Verspeek. I also would like to thank Jenny Eikelboom, Dominic van Kleef, Daniëlle Oosthoek and Jeroen Steeghs for their research assistance.346
© 2024 Walter de Gruyter GmbH, Berlin/Boston
Articles in the same Issue
- Frontmatter
- Frontmatter
- 269Redefining the Conceptual Ground of Corporate Governance Regulation
- Legal Transplants of Shareholder Voting Rights in the European Union – Evidence from the Past, Consequences for the Future
- Determining Economic Loss Due to Misrepresentations on the Stock Market Using Forward Casting
- Delisting Costs and Corporate Mobility in Europe
- 398Regulation of Takeover Bids in a Global Context
- Cross-border Mobility of Insolvent Companies Within the European Union
- The Assurance of Corporate Sustainability Reports and the Renewed Role of Certified Auditors
- The Sanctions Principles-Based Regulation: A Blueprint for a New Approach for the EU Sanctions Policy (Part II)
Articles in the same Issue
- Frontmatter
- Frontmatter
- 269Redefining the Conceptual Ground of Corporate Governance Regulation
- Legal Transplants of Shareholder Voting Rights in the European Union – Evidence from the Past, Consequences for the Future
- Determining Economic Loss Due to Misrepresentations on the Stock Market Using Forward Casting
- Delisting Costs and Corporate Mobility in Europe
- 398Regulation of Takeover Bids in a Global Context
- Cross-border Mobility of Insolvent Companies Within the European Union
- The Assurance of Corporate Sustainability Reports and the Renewed Role of Certified Auditors
- The Sanctions Principles-Based Regulation: A Blueprint for a New Approach for the EU Sanctions Policy (Part II)
