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Can long-term institutional owners improve market efficiency in parsing complex legal disputes?

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  • Borochin, Paul
  • Wang, Xiaoqiong
  • Wei, Siqi

Abstract

Long-horizon institutional investors can help mitigate information asymmetries around securities class action (SCA) lawsuits. We find that the machine readability of SCA complaint filings can predict the outcome and duration of class actions. Long-term institutional investor ownership leads to a more positive post-SCA announcement price reaction and increases the volatility ratio of prices as a measure of price informativeness. Furthermore, there is a significant interaction effect between long-term institutional ownership and SCA complexity on price informativeness consistent with a superior information processing ability about complex corporate events affecting portfolio firms.

Suggested Citation

  • Borochin, Paul & Wang, Xiaoqiong & Wei, Siqi, 2024. "Can long-term institutional owners improve market efficiency in parsing complex legal disputes?," International Review of Economics & Finance, Elsevier, vol. 96(PC).
    • Handle: RePEc:eee:reveco:v:96:y:2024:i:pc:s1059056024006828
    DOI: 10.1016/j.iref.2024.103690
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    More about this item

    Keywords

    Institutional ownership; Securities class actions; Market efficiency; Natural language processing;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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