Market Efficiency and Securities Litigation: Implications of the Appellate Decision in Thane

Bradford Cornell, Caltech

Abstract

The recent Ninth Circuit decision in Miller v. Thane International, Inc. is a significant innovation that brings legal precedent regarding market efficiency more in line with current thinking in financial economics. Prior to Thane there was a tendency for courts to view financial markets as being either efficient or not. This is contrary to academic thinking in finance where scholars have come to accept that financial markets can never be fully efficient or completely inefficient. Instead financial markets, like physical systems, are better thought of as evidencing relative degrees of efficiency. By reaching the conclusion that the hurdle for assessing efficiency depends on the particular legal issue at hand, the Ninth Circuit appropriately adopts the concept of relative efficiency.