Political Insider Trading: A narrow versus comprehensive approach

Jan Hanousek (), Christos Pantzalis () and Jung Chul Park ()
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Jan Hanousek: Department of Finance, University of South Florida, Tampa, FL 33620, Faculty of Business and Economics, Department of Finance, Mendel University in Brno, Czech Republic
Christos Pantzalis: Kate Tiedemann School of Business and Finance, Muma College of Business, BSN3403, University of South Florida, Tampa, FL 33620
Jung Chul Park: Kate Tiedemann School of Business and Finance, Muma College of Business, BSN3403, University of South Florida, Tampa, FL 33620

No 2021-77, MENDELU Working Papers in Business and Economics from Mendel University in Brno, Faculty of Business and Economics

Abstract: We examine senators’ electronically filed stock transactions between 2012 and 2019 to assess the extent of politician’s insider trading. Our results suggest that senators use inside political information when investing and earn significant market-adjusted returns. To extend traditional return-based methods, we propose a new comprehensive approach based on abnormal idiosyncratic volatility (AIV), which captures the degree of information asymmetry around their trading dates. We document that senator trades are associated with substantially high levels of AIV, suggesting that they represent only a tip of the iceberg, since the mass of unfiled transactions using the same inside information remains undetected.

Keywords: Abnormal idiosyncratic volatility; legislator’s trading; politician’s insider trading; STOCK Act (search for similar items in EconPapers)
JEL-codes: C58 G12 G14 G28 (search for similar items in EconPapers)
Pages: 51
Date: 2021-04
New Economics Papers: this item is included in nep-fmk and nep-mst
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