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Market Efficiency at Class Certification: Cammer and Krogman

Before a securities class can rely on the Basic presumption, the plaintiffs must show that the security traded in an efficient market. For large listed stocks that is usually conceded; for thinly traded stock, bonds and structured certificates it is often the whole fight. Courts organize the inquiry around five factors from Cammer v. Bloom and three more from Krogman v. Sterritt, and the fifth Cammer factor, the cause-and-effect relationship between news and price, is tested with an event study. This guide sets out the factors, the event-study disputes, the special problems of securities that rarely trade, and what each side's expert needs to establish.

Guide 5 of 5 · October 6, 2026 · 8 min read
On this page
  1. Where efficiency
  2. The five Cammer
  3. The three Krogman
  4. Testing cause and
  5. Bonds, notes and
  6. How each side's
  7. What to prepare

Where efficiency fits in the Basic framework

Efficiency is one of the prerequisites for the presumption of reliance. Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II) described how plaintiffs commonly prove it: with "event studies," which the Court called "regression analyses that seek to show that the market price of the defendant's stock tends to respond to pertinent publicly reported events."

The standard is not perfection. Halliburton II explained that Basic's presumption "does not rest on a 'binary' view of market efficiency," because Basic "recognized that market efficiency is a matter of degree and accordingly made it a matter of proof." In In re Petrobras Securities Litigation, the Southern District of New York added: "In assessing market efficiency, courts should not let the perfect become the enemy of the good." The Second Circuit, in Waggoner v. Barclays PLC, described the burden of establishing efficiency, quoting its own decision in Petrobras, as "not an onerous one."

The five Cammer factors

Cammer v. Bloom, a 1989 District of New Jersey decision, did not set a test so much as list "several types of facts which, if alleged, might give rise to an inference" that a stock traded in an efficient market. Later courts converted that list into five factors. As the Second Circuit set them out in Teamsters Local 445 Freight Division Pension Fund v. Bombardier Inc., they are trading volume, analyst coverage, market makers, "the issuer's eligibility to file an SEC registration Form S-3," and "the demonstration of a cause and effect relationship between unexpected, material disclosures and changes in the Certificates' prices," the certificates being the securities at issue there.

  • Trading volume. Cammer quoted a treatise for the benchmark still used today: "Turnover measured by average weekly trading of 2% or more of the outstanding shares would justify a strong presumption that the market for the security is an efficient one; 1% would justify a substantial presumption." The court explained that heavy trading "implies significant investor interest in the company."
  • Analyst coverage. Analysts are the channel through which company disclosures reach prices. The Fifth Circuit in Unger v. Amedisys Inc. called "the number of securities analysts following the stock" an "important factor."
  • Market makers. For over-the-counter securities, the same treatise passage suggested that "Ten market makers for a security would justify a substantial presumption."
  • Form S-3 eligibility. Eligibility signals a seasoned issuer with a reporting history and a meaningful float.
  • Cause and effect. Cammer said it would be helpful "to allege empirical facts showing a cause and effect relationship between unexpected corporate events or financial releases and an immediate response in the stock price. This, after all, is the essence of an efficient market and the foundation for the fraud on the market theory."

The first four factors are indirect evidence. Waggoner described the fifth, "Cammer 5," as "the only 'direct' measure of efficiency."

The three Krogman factors

In Krogman v. Sterritt, the Northern District of Texas added three measures drawn from economic literature: "(1) the capitalization of the company; (2) the bid-ask spread of the stock; and (3) the percentage of stock not held by insiders (the 'float')."

On volume, the court held that under Cammer "stock turnover is to be measured as a percentage of the total outstanding shares," not as a percentage of the float, which the plaintiffs' expert had used. The defense calculation produced a weekly median of 0.1 percent, and for "two trading months (forty-five days), not one share of CIC common stock changed hands." Market capitalization weighed "slightly in favor" of efficiency. A median bid-ask spread of about 5.6 percent of the closing price suggested inefficiency. As the court put it, "A large bid-ask spread is indicative of an inefficient market, because it suggests that the stock is too expensive to trade." Insiders held 54 percent of the shares, and the low float weighed against efficiency because insiders "may have private information that is not yet reflected in stock prices." The court concluded that "most of the factors identified by Cammer and in economic literature relied upon by other cases weigh against a finding of market efficiency for CIC stock."

Testing cause and effect with an event study

Bombardier explained that "an event study that correlates the disclosures of unanticipated, material information about a security with corresponding fluctuations in price has been considered prima facie evidence of the existence of such a causal relationship," but that a study "may be rejected, however, if it is methodologically unsound or unreliable."

Three disputes recur.

Choice of events. The study must test news that is both new and material to the security being studied. In Bombardier, the event study measured certificate prices around disclosures about the parent company's financial health. Because "the disclosures studied were immaterial" to the certificates' collateral, "any fluctuations in the Certificates' prices documented by the event study could not reasonably be interpreted to reflect market efficiency." The same logic cuts against the defense. In Petrobras, the district court gave little weight to a defense test run on the plaintiffs' alleged corrective-disclosure dates, because those dates "did not all involve new information being presented to the market and are therefore not an appropriate sample for a z-test."

Directionality. Defendants often argue that an efficient price must move in the expected direction on every news day. The Second Circuit rejected that rule in Universities Superannuation Scheme Ltd. v. Petróleo Brasileiro S.A. (Petrobras), holding that the defendants were "attempting to relabel a sufficient condition as a necessary one." The court noted that "it can be extremely difficult to isolate the price impact of any one piece of information in the presence of confounding factors, such as other simultaneously released news about the company, the industry, or the geographic region."

Whether an event study is required at all. In Waggoner, the seven indirect factors were so strong that the defendants did not challenge them, and the Second Circuit held that "a plaintiff seeking to demonstrate market efficiency need not always present direct evidence of price impact through event studies." The court warned that direct evidence matters more when the indirect factors are weak. The Fifth Circuit's warning in Unger runs the same way: a court may not use the factors "as a checklist rather than an analytical tool."

Bonds, notes and thinly traded securities

The indirect factors were built for common stock, so debt and structured products are where efficiency is most often contested. In Bombardier, the certificates were, as Waggoner later summarized, relatively few, issued in high denominations and traded primarily "in large amounts by sophisticated institutional investors." The district court found that "the absence of market makers for the Certificates, the lack of analysts following the Certificates, and the absence of proof that unanticipated, material information caused changes in the Certificates' prices," together with infrequent trading, established inefficiency, and the Second Circuit affirmed the denial of certification.

Two lessons carry over to any bond case. First, an event study may use quoted or matrix prices when trades are sparse. The Second Circuit held that it was "unsound to conclude that the fact that there were material differences in the values of FTIM and transaction prices prohibited the use of FTIM prices in the study," where the record showed the quoted prices tracked transaction prices around the disclosure dates. Second, the events must be material to the bond itself, usually news about credit risk, collateral or default.

Bonds can still clear the bar. In Petrobras, the Second Circuit affirmed the finding that "Petrobras ADS and Notes both trade in efficient markets," holding that the district court "properly considered a combination of direct and indirect evidence." Read together, the cases suggest that strong indirect factors let a court accept an imperfect event study, while weak ones force the event study to carry the case.

How each side's expert argues it

The plaintiffs' expert. The plaintiffs' expert should measure turnover against total shares outstanding, as Krogman requires, and report float-based figures only as a supplement. The indirect factors should be benchmarked against a defensible peer set. The event study should select news days by an objective rule fixed in advance and test whether significant returns cluster on those days. For bonds, the expert should show that quoted prices are reliable proxies for transaction prices and that the chosen events bear on the bond's value.

The defense economist. The defense economist builds the record of inefficiency factor by factor: zero-volume days, wide spreads, concentrated insider holdings, a thin analyst following, and sparse dealer quotes. On the event study, the attack is usually on event selection and materiality, as in Bombardier, and on whether the results distinguish news days from ordinary days. Defense tests run on dates with no new information, as in Petrobras, draw the same criticism.

Both experts. Courts treat the factors as an analytical framework, not a scorecard. A report that explains why each factor shows, or fails to show, that information reaches the price carries more weight than a tally.

What to prepare

  • Weekly turnover as a percentage of total shares outstanding, with float-based figures separately labeled.
  • Counts of analysts, market makers or dealers, and institutional holders across the class period.
  • Market capitalization, bid-ask spread and insider holdings, benchmarked against a stated peer set.
  • A written, objective rule for selecting event days, applied before results are known.
  • Event-study results showing whether significant returns are more frequent on news days, with confounding news identified.
  • For bonds and certificates, transaction data, an assessment of quoted prices as proxies, and events tied to credit or collateral.

Supreme Mind builds Expert Witness Simulation. A lawyer points it at a matter and picks a class of expert, such as a plaintiffs' market-efficiency economist, and one run returns a brief in four sections: the expert's likely opinion, ranked cross-examination weaknesses, the Daubert and Rule 702 attack surface, and a directional settlement range. Experts are de-identified composites of a class, never a named individual, supporting quotations are checked verbatim against the public record, and nothing it produces is filed or testifies. A complete sample brief on In re Luckin Coffee is at /sample-brief, and the method is described at /method.

This guide is general information, not legal advice.

Sources

How each court of appeals applies amended Rule 702: see the Rule 702 tracker.

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Experts in this guide's practice

Defense event-study econometricianPlaintiff event-study and loss-causation econometricianMarket-efficiency expertSecurities accounting and GAAP expertSection 11 negative causation economist

The series

01Securities · September 8, 2026Daubert Challenges to Event Studies in Securities Cases02Securities · September 15, 2026Price Impact at Class Certification After Goldman03Antitrust · September 22, 2026Common Impact and Pass-Through at Class Certification04Any expert · September 29, 2026Amended Rule 702 After Nearly Three Years: What Courts Exclude05Securities · October 6, 2026Market Efficiency at Class Certification: Cammer and Krogman

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