Using the Actual-Trader Model in Federal Securities Cases to Meet Daubert Standards and to Offset Inflationary Gains against Inflationary Losses

Ran Wei, Chicago Partners, a subsidiary of Navigant Consulting
Ricardo Cossa, Chicago Partners, a subsidiary of Navigant Consulting
Mark Zmijewski, Chicago Partners and the University of Chicago Booth School of Business

Abstract

Aggregate damages in securities class action lawsuits have two distinct elements: inflation in the prices of the subject company’s securities and the trading behavior of the subject company’s investors. Experts typically have not been able to use statistical and empirically-based methods to measure the trading behavior of all investors in the class. In this paper we outline a methodology, the actual-trader model, to quantify aggregate damages for non-institutional investors. This methodology provides appropriate and sufficient empirical foundation for the aggregate damage calculations in securities class action lawsuits. When implemented appropriately, we believe this methodology meets Daubert and other standards of expert testimony.