The Enduring Legacy of Modern Efficient Market Theory After Halliburton v. John

Authors

Mark Klock, George Washington University School of Law

Publication Date

2016

Abstract

In 1988 the U.S. Supreme Court approved the fraud on the market theory for securities trading in an efficient market thus enabling securities class action plaintiffs to establish their required reliance element of the case through a rebuttable presumption. Basic v. Levinson held that efficient markets incorporate publicly disseminated information and investors who purchased or sold securities in an efficient market therefore relied on any publicly disseminated misinformation. For more than a quarter century since Basic, the efficient market theory has sustained a barrage of assaults from commentators who object to the use of economic theory in legal decision making and who have drawn unsubstantiated inferences from pieces of economic literature taken out of context. In the recently decided case of Halliburton v. John, the Court affirmed its commitment to efficient market theory; however, Justices Alito Scalia, and Thomas reject the efficient market theory in reliance on legal scholars who have misstated the consensus of economists. This Article examines the misplaced hostility to efficient market theory.

Recommended Citation

Klock, Mark (2016) "The Enduring Legacy of Modern Efficient Market Theory After Halliburton v. John," Georgia Law Review: Vol. 50: No. 3, Article 5.
Available at: https://digitalcommons.law.uga.edu/glr/vol50/iss3/5