Securities Class Actions: Trading Models to Estimate Individual Investor Trading Activity and Aggregate Damages
Published by The Brattle Group, Inc.
In securities class action lawsuits, the amount of aggregate damages defendants may face is of interest to all parties involved in litigation. Both plaintiffs and defendants have traditionally relied on trading models as a tool to assess defendants’ liability.
As the overwhelming majority of securities class action cases lack access to individual investor trading data, parties must estimate aggregate damages. Litigants have been using trading models to estimate damages in securities litigation for more than two decades. A trading model incorporates assumptions about investors’ trading patterns and simulates the trading activity of market participants using a variety of simplifying assumptions. The aggregate damages estimate based on a trading model can oftentimes drive the course of the litigation. This article reviews the basic intuition behind trading models.
