The Cammer turnover factor in securities class actions

The Cammer turnover factor in securities class actions

The 1989 case of Cammer v. Bloom established the five “Cammer factors” that are used as benchmarks for gauging market efficiency in securities class actions under Section 10b-5 of the 1934 Exchange Act. The Cammer factors require a showing of a sufficiently high average weekly trading volume, sufficient number of analysts following, sufficient number of market makers, eligibility to file a form S-3, and the presence of a cause and effect relationship between unexpected material disclosures and changes in the security’s price.

This article examines the first Cammer factor: weekly turnover. While trading volume has increased over time, there is still a non-trivial fraction of exchange-traded companies that do not satisfy the minimal 1% Cammer turnover threshold for market efficiency. However, 98% of large exchange-traded companies exceed the 1% Cammer turnover threshold. The finding that a significant portion of stocks do not meet the Cammer turnover threshold contrasts with the claim that merely trading on a major U.S. exchange ensures efficiency. There is also evidence that more companies targeted by 10b-5 actions meet the Cammer volume factor thresholds, suggesting that plaintiffs take into account the likelihood of satisfying the Cammer factors in filing a lawsuit.

 

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