Abstract

http://ssrn.com/abstract=1707181
 
 

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Capitalizing on Capitol Hill: Informed Trading by Hedge Fund Managers


Jiekun Huang


University of Illinois at Urbana-Champaign - Department of Finance

Meng Gao


National University of Singapore, RMI

April 18, 2011

Fifth Singapore International Conference on Finance 2011
AFA 2012 Chicago Meetings Paper

Abstract:     
In this paper, we examine the hypothesis that hedge fund managers obtain an informational advantage in securities trading through their connections with lobbyists. Using datasets on hedge fund long-equity holdings and lobbying expenses from 1999 to 2008, we show that hedge funds that are connected to lobbyists tend to trade more heavily in politically sensitive stocks than do non-connected funds. Furthermore, using a difference-in-differences approach, we find that connected hedge funds, relative to non-connected ones, outperform by 1.6 to 2.5 percent per month on their holdings of politically sensitive stocks, relative to their non-political holdings. Our study provides evidence for the ongoing debate about regulatory reform governing informed trading based on private political information.

Number of Pages in PDF File: 51

Keywords: Hedge funds, lobbyists, informed trading, performance, information transfer

JEL Classification: G11, G23, G14

working papers series


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Date posted: November 13, 2010 ; Last revised: September 28, 2011

Suggested Citation

Huang, Jiekun and Gao, Meng, Capitalizing on Capitol Hill: Informed Trading by Hedge Fund Managers (April 18, 2011). Fifth Singapore International Conference on Finance 2011 ; AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1707181 or http://dx.doi.org/10.2139/ssrn.1707181

Contact Information

Jiekun Huang (Contact Author)
University of Illinois at Urbana-Champaign - Department of Finance ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
HOME PAGE: http://www.huangjk.info
Meng Gao
National University of Singapore, RMI ( email )
21 Heng Mui Keng Terrace
Level 4
Singapore, 119613
Singapore
65-6516-4116 (Phone)
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