Ozlem Akin, Christian Fons-Rosen, José-Luis Peydró, 29 October 2020

There are widespread concerns about potentially excessive connections between the financial sector and political institutions. Less is known about the intensity of information flows between the public and private sector. This column examines insider trading surrounding the largest bank bailout in history, the 2008 US Troubled Asset Relief Program. In politically connected banks, insider buying during the pre-TARP period is associated with increases in abnormal returns around bank-specific TARP announcements. Information transmission seems to be a third pillar of the mutually beneficial relationship between finance and politics, possibly allowing bankers to use their political connections for personal gain.

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