In a case that delved into a much-debated academic theory, a ruling erects a new hurdle for investors to clear in some class-action lawsuits. Mr. Shiller emphasized “the enormous role of human error” that has been documented by behavioral finance and the need to rein in market excesses through regulation. Therefore, the company argued, the court should overturn a 1988 decision, Basic v. Levinson, that has allowed shareholders in publicly traded companies to form class-action groups based on the automatic assumption that significant misstatements caused share prices to fall.
“The economics have changed,” Aaron M. Streett, Halliburton's lawyer, declared before the court. He said that many investors “do not rely on the integrity of the market price whatsoever. ... Sometimes, for example, prices are much higher than can be justified by fundamental factors like corporate earnings and other public information.They are prone to bouts of irrational exuberance, outright panic and other apparent aberrations that give wise traders an edge, and make claims of total efficiency hard to defend.”