To assess the magnitude and materiality of company disclosures on security prices, economists often apply a family of methodologies known as “event studies” that rely on establishing a baseline of expected price volatility.

In a recent Law360 article on the use of event studies in securities class actions, Dr. Ryan Leary and coauthors used market data surrounding the COVID-19 pandemic to show that the event study methodology can lead to both false positives (during periods of increased market volatility) and false negatives (when market volatility is decreasing). The authors also discuss methods that could be employed to improve the accuracy of event studies in periods of changing market volatility.