Should a court consider stock market index movements in evaluating whether a plaintiff has plausibly plead the existence of loss causation? In an interesting decision issued this summer, the U.S. Court of Appeals for the Second Circuit has held that stock market indexes are subject to judicial notice and may be a useful tool in assessing loss causation.
In Huey v. Anavex Life Sciences Corp., 180 F.4th 56 (2d Cir. 2026), the court considered a case where the company’s stock price rose the day of the alleged corrective disclosure, but then declined over the next two trading days. The court’s decision contains several significant holdings.
As a threshold matter, the court held that the element of loss causation in a federal securities fraud case is governed by the PSLRA’s requirement that “the plaintiff shall have the burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages.” Under the statute, the plaintiff is required to demonstrate both the existence of a causal link between the alleged misstatement and the stock price drop and that the alleged misstatement was the proximate cause of the loss.
Moreover, securities cases based on a fraud-on-the-market theory assume that the market is efficient. Accordingly, “courts must view the loss-causation allegations in a fraud-on-the-market case in light of the market’s broader movements and the gap in time between the corrective disclosure and the alleged loss.” While a plaintiff does not have to “establish loss causation by showing a loss on the exact day of the corrective disclosure,” where a plaintiff “alleges a loss that occurs some time after the corrective disclosure is made, it becomes that plaintiff’s burden to allege plausibly why the loss was not immediate.”
In the instant case, the company’s “share price increased by 5.8% to $11.75 per share from the previous trading day’s closing price of $11.11 per share.” Then the next day “the share price fell by 7.0% to $10.93, and the day after that it fell again by 4.8% to $10.41.” The court noted that because the “alleged losses took place only subsequently in the two days following the corrective disclosure, [plaintiff] bears a heightened burden to establish a plausible causal link between the misrepresentation and the delayed drop.”
The plaintiff did not offer an explanation for the delayed reaction (other than a conclusory argument on appeal that it took time for the market to understand what had been disclosed). The court took judicial notice of the Nasdaq Composite index movements on the trading days in question and found that over the first two trading days the company’s share price basically tracked the market, and only on the third trading day “did the share price decline notably more than the market (4.8% vs. 1.0%).” Under these circumstances, the court concluded that “where, as here, the share price did not substantially decline until two days after the corrective disclosure, and even that decline coincided with broader market losses, we hold that [plaintiff] failed plausibly to allege loss causation.”
Holding: Dismissal affirmed.
The 10b-5 Daily 