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Good Finance, Bad Economics: An Analysis of the Fraud on the Market Theory
Macey, Jonathan Miller, Geoffrey
Macey, Jonathan
Miller, Geoffrey
Abstract
The Supreme Court's endorsement of the fraud-on-the-market theory in Basic, Inc. v. Levinson established the efficient capital markets hypothesis (ECMH), a cornerstone of modern finance theory, as a decisive tool for resolving legal disputes involving securities fraud and matters of corporate disclosure. Although the ECMH has long been an integral part of legal scholarship on the nature and purpose of securities regulation, courts have treated it with suspicion, except when ignoring or misapplying it. This article analyzes the adoption of the ECMH by the Court in Basic, Inc. v. Levinson.