Legal Aspects of Finance Slide Set 8a Legal Liabilities on Securities Markets 1)Calculating Adequately Causal Losses Matti Rudanko

Legal Aspects of Finance 8 2 Market Fraud Theory

Legal Aspects of Finance 83 Background: market efficiency

Legal Aspects of Finance 8 4 Efficient Capital Markets Hypothesis ECMH (Fama Journal of Finance 1970)

Legal Aspects of Finance 8 5 Market Model for Investment Behavior

CAPM, Black – Scholes (1973 Journal of Political Economy) Legal Aspects of Finance 8 6

7 Portfolio theory and damages Systematic risk (market risk) portfolio diversification entitles to no compensation non-systematic risk ß -coefficient: relation between the volatility of a share and that of the market helps to correct the price development of the share for assessing the loss due to info failures

Event Study Based Method of Calculating Damage Legal Aspects of Finance 8 8

More Accurate Mathematical Tools vs. Supreme Court Reasoning Legal Aspects of Finance 8 9

Damage due to information failure Legal Aspects of Finance 8 10

Compensation of Price Difference Legal Aspects of Finance 8 11

Legal Aspects of Finance 812 Assessing the amount of a loss The “maturity time” (becoming compensable) of loss –e.g. breach of redemption duties (AML 6:2): the current price of redemption time subtracted with actual current price (possible later profits have no effect)

Trial on Securities Markets Loss Cases Legal Aspects of Finance 8 13