Peering into the Crystal Ball: The Information Content of Legislative Trading
43 Pages Posted: 31 Oct 2023
Date Written: October 1, 2023
Abstract
This study introduces a new measure of the political risk to which firms are subject. We find that the aggregate equity trading U.S. senators significantly predicts a firm’s future risk and return. This measure possesses industry-relevant information beyond what is contained in existing measures of political risk and uncertainty. We show that aggregated Senatorial trading conveys information about future industry performance more than individual equity transactions. Our findings are robust to alternate model specifications and are economically significant. Our results significantly extend the findings of previous studies on how political risk affects a firm’s performance.
Keywords: information asymmetry, insider trading, legislative activity, political risk
JEL Classification: G12, G14, G28, G32, K22
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