Political Insider Trading: A Narrow versus Comprehensive Approach

44 Pages Posted: 22 Mar 2021

See all articles by Jan Hanousek Jr.

Jan Hanousek Jr.

University of South Florida; Mendel University in Brno - Mendel University in Brno

Jung Chul Park

University of South Florida

Christos Pantzalis

University of South Florida

Date Written: March 12, 2021

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

JEL Classification: C58, G12, G14, G28

Suggested Citation

Hanousek Jr., Jan and Park, Jung Chul and Pantzalis, Christos, Political Insider Trading: A Narrow versus Comprehensive Approach (March 12, 2021). Available at SSRN: https://ssrn.com/abstract=3808702 or http://dx.doi.org/10.2139/ssrn.3808702

Jan Hanousek Jr. (Contact Author)

University of South Florida ( email )

Tampa, FL 33620
United States

Mendel University in Brno - Mendel University in Brno ( email )

Zemědělská 1
Brno, 61300
Czech Republic

Jung Chul Park

University of South Florida ( email )

Tampa, FL 33620
United States
813-974-9680 (Phone)
813-974-3084 (Fax)

HOME PAGE: http://usf.edu/business/about/bios/park-jung-chul.aspx

Christos Pantzalis

University of South Florida ( email )

Tampa, FL 33620-5500
United States
(813) 974-3262 (Phone)

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