Legislating stock prices
By: Lauren Cohen, Karl Diether, and Christopher Malloy
Contributors: Diether, Karl; Malloy, Christopher; Harvard Business School
Series: Working paper / Harvard Business School -- 13-010; Working paper (Harvard Business School) -- 13-010.
Publisher: Harvard Business School
Published: 2012
Place of publication: [Boston]
Language: eng
Number of pages: 27
Description: In this paper we demonstrate that legislation has a simple, yet previously undetected impact on firm stock prices. While it is understood that the government and firms have an important relationship, it remains difficult to determine which firms any given piece of legislation will affect, and how it will affect them. By observing the actions of legislators whose constituents are the affected firms, we can gather insights into the likely impact of government legislation on firms. Specifically, focusing attention on "interested" legislators' behavior captures important information seemingly ignored by the market. A long-short portfolio based on these legislators' views earns abnormal returns of over 90 basis points per month following the passage of legislation. Further, the more complex the legislation, the more difficulty the market has in assessing the impact of these bills. Consistent with the legislator incentive mechanism, the more concentrated the legislator's interest in the industry, the more informative are her votes for future returns.
Notes: "July 2012" -- Publisher's website.

Includes bibliographical references.