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Do Institutional Investors Value the Rule 10b-5 Private Right of Action? Evidence from Investors’ Trading Behavior following Morrison v. National Australia Bank Ltd.

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In Morrison v. National Australia Bank Ltd., the US Supreme Court limited investors’ ability to bring private Rule 10b-5 securities fraud actions to cases involving securities purchased on a US stock exchange or otherwise purchased in the United States. Because many foreign firms’ securities trade simultaneously on non-US venues and on US exchanges, institutional investors claimed after Morrison that they would look to such firms’ US-traded securities to preserve their rights under Rule 10b-5. This paper tests this prediction using proprietary trading data from 378 institutional investors. The analysis reveals no evidence that investors reallocated trades in cross-listed issuers to the United States, nor did they reallocate foreign trading to cross-listed issuers that are now clearly subject to 10b-5 securities suits. This persistence in trading appears across both money managers and pension plan sponsors, notwithstanding sponsors’ more vocal criticism of Morrison and their prominence in 10b-5 litigation.

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