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Supreme Court Decisions Change the Market by Billions of Dollars

There's no question that Supreme Court decisions affect the economy. (Lochner, anyone?) But now, a new study has identified just how much of an impact recent Court rulings have had on Wall Street.

Between 1999 and 2013, 79 Supreme Court rulings have had identifiable effects on the market, the study found. In all, those 79 rulings lead to more than $140 billion in absolute changes in wealth. The most impactful cases resulted in companies' stocks soaring, or plummeting, by billions in a matter of hours.

Billion Dollar Cases

Sure, 79 cases are just a fraction of the almost 1,400 opinions the study reviewed, but $140 billion is nothing to sneeze at. Those opinions that did make an impact truly moved markets, having an average impact of $1.88 billion each. About five cases a year caused the shares of publicly traded companies to move "in direct response to a Supreme Court decision," the study found.

The study was conducted by Daniel Katz, of the Chicago-Kent College of Law, along with Michael Bommarito II, of the University of Michigan, and Tyler Soellinger and James Chen from Michigan State University College of Law.

The Supreme Court Gives Lots, Takes Away Little

To illustrate the impact Supreme Court opinions can have, the study's authors begin with a look at Myriad Genetics. Myriad patented two genes, BRCA1 and BRCA2, related to breast and ovarian cancer then used those patents in an attempt to control genetic testing for those genes. After Myriad was sued, a complex Supreme Court case held that genes could not be patented, but allowed for the patenting of artificial genes.

Wall Street traders, not known for their skill deciphering legal opinions, originally thought the opinion was positive, raising Myriad's stock value, before realizing their mistake. Within two days, Myriad's stock, trading at 13-18 times its normal rate, lost $546.7 million in market value, 20 percent of the stock's worth.

Myriad stands out, since the Court's ruling directly related to that single company's business model. But even when rulings are less direct, addressing industry regulations for example, effects can be measurable.

Wall Street Winners and Losers

So, what Supreme Court decisions had the biggest impact? United States v. Locke, the decision from 2000 which ruled that federal regulations governing oil tankers preempted general navigational watch procedures. That case greatly reduced Exxon Mobil's potential liability for the Exxon Valdez oil spill, increasing Exxon's stock by $23 billion. Even Chevron benefited, gaining over $3 billion in stock value.

Losses generated by Supreme Court decisions tend to be much smaller. The biggest loss came from Williamson v. Mazda, which held that tort suits over seat belts were not preempted by federal standards. That 2011 decision reduced Mazda's stock over $5 billion.

The study shows that there's money to be made by enterprising traders with a legal eye. As the report notes, most shifts take awhile to take place, sometimes requiring a full day of trading or more for information to be processed by the market.

Katz, the study's author, will now turn his attention to lower courts, The Wall Street Journal reports, to see if those more frequent but often less impactful rulings have measurable market impacts.

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