Political Connections and the Informativeness of Insider Trades
60 Pages Posted: 8 Sep 2016 Last revised: 17 Jan 2018
Date Written: July 29, 2017
We examine the relation between political connections and informed trading by corporate insiders at leading financial institutions during the Financial Crisis. We find strong evidence of a relation between political connections and informed trading, that the relation is strongest during the period in which TARP funds were disbursed, and strongest among TARP recipients. Notably, we find evidence of abnormal trading by politically connected insiders 30 days in advance of TARP infusions, and that these trades predict the market reaction to the infusion. Our results suggest that politically connected insiders had a significant information advantage during the Crisis and opportunistically timed their trades to exploit this advantage.
Keywords: Political Connections; Insider Trading; Financial Crisis; Troubled Asset Relief Program; Capital Purchase Program
JEL Classification: G14; G20; G28; G30; K2
Suggested Citation: Suggested Citation