Effect on Rule 10b-5 Damages of the 1995 Private Securities Litigation Reform Act: A Forward-Looking Assessment

This Article considers how section 2ID of the Private Securities Litigation Reform Act of 1995 is likely to affect damage assessments in securities class actions and other 10b-5 cases. Graphs are used to illustrate how this new "bounce-back" rule will reduce or even eliminate damages in cases where a stock suffers only a short term price decline. This theoretical presentation is supplemented with analyses of investor losses and plaintiffs' claims in shareholder class actions that settled from 1991 to 1994. The empirical evidence suggests that, except perhaps in bull markets, the law will have at most a modest impact on damages in the vast majority of cases.