Declaration of Frank C. Torchio for Settlement Purposes

Case 2:07-cv-05295-MRP -MAN Document 987-4 Filed 10/11/10 Page 15 of 721 Page ID
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which cannot be explained by the return on the market) is attributed to new company-specific
information. If the disclosure of company-specific information is accompanied by a security
return that is outside of the security’s normal volatility range (as measured by the market model),
then the return is said to be “statistically significant.” The measure of statistical significance
allows the researcher to assess the probability that a security-price movement was due to new
information disclosed on a particular date and not due to chance.
23. Event studies are most useful in determining the effects of new information on
security prices when: (i) there is a well-defined public disclosure or announcement; (ii) the time
that the news item reaches the market is known; (iii) there is no reason to believe that the market
anticipated the news item; and (iv) it is possible to isolate the effect of the news item from
market, industry, and other issuer-specific factors simultaneously affecting the issuer’s security
price. 15
B. Identifying Relevant Disclosures
24. There are four key considerations for an economic analyst when identifying
which disclosures are corrective of an alleged securities fraud.
15 David I. Tabak and Frederick C. Dunbar, “Materiality and Magnitude: Event Studies in
the Courtroom,” in Litigation Services Handbook: The Role of the Financial Expert, Third
Edition, ed. by Roman L. Weil, Michael J. Wagner and Peter B. Frank, Wiley, 2001, 19.2.
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