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Using a unique set of publicly-traded litigation certificates, we measure the wealth effects of (largely) unanticipated damage awards in the ongoing supervisory goodwill litigation between thrifts and the federal government. Estimating abnormal returns for portfolios of litigation certificates and retained supervisory goodwill claims, we find that the estimated net wealth effect of four litigation-related events between October 1998 and April 1999 was roughly twice as large for the portfolio of publicly-traded litigation certificates as for the portfolio of retained litigation claims. This disparity is puzzling given that the aggregate amount of supervisory goodwill in each portfolio was roughly equivalent. This study provides some evidence that financial markets do not always value assets and liability retained within firms efficiently.
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