Decoding the Market's Reaction to Settlement Announcements

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Decoding the Market's Reaction to Settlement Announcements

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Title: Decoding the Market's Reaction to Settlement Announcements
Author: Cole, Emily C
Citation: Emily Cole Groden, Decoding the Market's Reaction to Settlement Announcements (Harvard Law School Roger Fisher and Frank E.A. Sander Student Writing Prize, May 2015).
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Abstract: This study examines defendant stock price returns on the day preceding, the day of, and the day following announcements of settlements in various types of litigation from 2009 through 2014. I hypothesized that defendant returns would be significantly positive on the day of and the day following the announcement, regardless of the settlement amount, due to the market’s perception of a decrease in cost and uncertainty associated with litigation. I further hypothesized that defendant returns would not be significantly positive on the day preceding the announcement, because the market presumably should not have had a reason to react. The results of my analysis support my first hypothesis; however, they also show a significant positive market reaction on the day preceding the announcement. This effect is likely due to the leakage of the settlement announcement and suggests future research should consider a larger event window.
Terms of Use: This article is made available under the terms and conditions applicable to Other Posted Material, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:16659300
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