Abnormal stock returns and shorting around securities class action lawsuits: The role of pre-filing news releases

Abstract

Studying 1,473 U.S. securities class action (SCA) lawsuits over 2009–2019, we find that the pre-filing abnormal negative returns and shorting are largely linked to public investigation news that precedes the SCA lawsuit filing. Across all the lawsuits, 73% of the total abnormal negative returns over the ten-day pre-filing period are attributed to the 31.6% of the cases that had investigation news over that pre-filing period. Our findings indicate that investors’ ability to anticipate SCA lawsuits is not as economically significant as previous studies suggest, and that SCA shorting profitability is substantially linked to analysis of public information.