Peering into the Crystal Ball: The Information Content of Legislative Trading

43 Pages Posted: 31 Oct 2023

See all articles by Jan Hanousek Jr.

Jan Hanousek Jr.

University of Memphis - Finance

Jan Hanousek

Faculty of Business and Economics, Mendel University in Brno; Centre for Economic Policy Research (CEPR)

Stephen Ferris

Ball State University

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

Suggested Citation

Hanousek Jr., Jan and Hanousek, Jan and Ferris, Stephen, Peering into the Crystal Ball: The Information Content of Legislative Trading (October 1, 2023). Available at SSRN: https://ssrn.com/abstract=4589414 or http://dx.doi.org/10.2139/ssrn.4589414

Jan Hanousek Jr. (Contact Author)

University of Memphis - Finance ( email )

United States

Jan Hanousek

Faculty of Business and Economics, Mendel University in Brno ( email )

Brno
Czech Republic

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Stephen Ferris

Ball State University ( email )

Muncie, IN 47306-0340
United States

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