Do Supreme Court Decisions Influence the Securities Market?

Can U.S. Supreme Court decisions influence the Securities Market?

The impact of U.S. Supreme Court decisions is often far-reaching. However, as highlighted in a recent study, 1 in 20 rulings suggest that Supreme Court decisions influence the securities market.

The study’s findings were particularly apparent in the wake of the Supreme Court’s decision to uphold the Affordable Care Act (ACA). Given the complexity of the decision, many news outlets initially reported incorrectly that the law had been struck down, which sent healthcare stocks surging. When the media clarified the Supreme Court’s decision in NFIB v. Sebelius, the stocks fell sharply, resulting in millions of dollars in investor losses.

Proving that U.S. Supreme Court decisions influence the securities market:

• Myriad Genetics Inc. A similar scenario occurred in 2013 when media reports erroneously suggested that Myriad Genetics Inc. had won its patent case in Association for Molecular Pathology v. Myriad Genetics Inc The company’s stock skyrocketed until legal experts clarified that the company had not been successful in its attempt to patent a newly discovered genetic sequence. Myriad ultimately saw its stock decline by 20 percent over a two-day period.
• ABC v. Aereo The Court’s decision in ABC v. Aereo is another example. While the decision spelled doom for the start-up’s attempt to circumvent the Copyright Act, the major broadcasting companies saw their stock prices surge when the competition was eliminated. According to the study, the major TV networks that filed the suit experienced an increase of more than $4 billion in market value two days after the decision.

Legal influence

The study, “Law on the Market: Evaluating the Securities Market Impact of Supreme Court Decisions,” confirms that these cases are not outliers. In fact, so-called “law on the market” events are fairly common. Overall, the study authors identified 79 cases where the share price of one or more publicly-traded companies moved in direct response to a Supreme Court decision. Over fifteen years, Supreme Court decisions directly resulted in more than 140 billion dollars in absolute changes in wealth.

So can legal experts use this information to make a profit on the stock market?

The study concludes that “[f]or those who are able to quickly and properly assess the direction and magnitude of the change in the information state, the rewards can be significant.”