Abstract:
This paper examines the hypothesis that hedge fund managers gain an informational advantage in securities trading through their connections with lobbyists. Using datasets on the long-equity holdings and lobbyist connections of hedge funds from 1998 to 2012, we show that hedge funds outperform by 63 to 87 basis points per month on their political holdings when they are connected to lobbyists. Furthermore, the political outperformance of connected funds decreased significantly after the STOCK Act was signed into law. Our study provides evidence on the transmission of private political information in the financial markets and on the value of such information to financial market participants.
(62 page PDF)
HT: The SSRN blog
