Standards for damages assessments generally encourage analysts to rely on market-based information in developing a valuation opinion. In international arbitration cases, when the disputes at stake involve-or ultimately impact-a publicly traded company whose shares are traded in liquid, efficient markets, and when specific dates of breach (and their announcement) can be traced, the economic expert may test or use an event study approach to shed light on the quantum of damages. The event study method, initially developed in 1969, has been extensively utilized in domestic U.S. litigation for estimating damages and yet is seldom heard of in international arbitration cases.
Through an event study, the economic expert may infer the quantum of damages associated with specific events directly affecting the stock market capitalization of a publicly traded company. By isolating the effects of events that are part of the claim from the impact on stock prices from other events that may be influencing its evolution but are not part of the actions being claimed for (i.e., industry-specific trends or economy-wide shocks) the event study method can provide a clean lens to measure damages that can be directly attributed to the actions under dispute. In this article we elaborate on how to use the event study to assess damages and make recommendations as to its suitability for international arbitration cases.Journal of International Arbitration