This Article questions how well the efficient market theory, as applied by event studies, works in cases originating during the Internet, high-tech, and telecommunications bubble of 1998 to 2001. In doing so, the Article discusses technical and theoretical challenges to the efficient market theory. Principally, however, this Article argues that the use of the efficient market theory-and relatedly the event study methodology-is inappropriate in bubble cases for normative reasons. The normative connection between the efficient market theory-applied through event studies-and the lOb-5 elements-reliance, materiality, loss causation, and damages-presupposes that the market acts rationally. Market professionals supposedly impose that rationality through trades that reflect the professionals' view of the relationship between the price of a stock and its fundamental value. During the bubble, the market professionals imposed no such rationality, and in fact the market acted irrationally, with stock prices far away from fundamental values. These developments dissolved the link between the efficient market theory and the normative notions underlying lOb-5 elements. Accordingly, courts do not produce justice when they apply the efficient market, through event studies, to lOb-5 cases arising out of the bubble in the years 1998 to 2001.
William O. Fisher, Does the Efficient Market Theory Help Us Do Justice in a Time of Madness, 54 Emory L.J. 843 (2005).