The Unreasonableness of Reasonable: Rethinking the Reasonable Investor Standard

Alexandra Li | April 16, 2023

This Note explores the “reasonable investor” standard in light of recent developments in pandemic-era securities litigation. Scholars have long criticized the reasonable investor standard for determining materiality. Given the dramatic backdrop of the COVID-19 pandemic, the limitations of the standard are becoming ever more evident. This Note provides a brief history of the development of the current standard and highlights some of its problems through two recent COVID-19 securities fraud cases. This Note argues that the reasonable investor standard is no longer sufficient to protect investors. Through examining tort law and First Amendment jurisprudence, this Note differentiates between the “reasonable” and “average” persons and recommends replacing the reasonable investor standard with the average investor standard.