Trading on Insider Political Information

There are some really wonderful new young economists out of Canada. I just had to let folks know of a fabulous study “Coups, Corporations and Classified Information”(find it via this list) done by one of them: Suresh Naidu (one of our own) and his colleagues Arindrajit Dube and Ethan Kaplan. (In the interest of full disclosure, Suresh is a buddy of mine from my Ph.D. days). A nice overview of the paper can be found on the New Yorker website, titled “Knock Over A President And Clear A Tidy Profit”

Their paper looked back at the stocks of US companies the stood to benefit from US-authorized coups. It turns out that the stock of several companies rose sharply after secret meetings in which high government officials decided to give the green light to coup plans. For example, United Fruit Company’s stock rose when plans were made for the 1954 coup in Guatemala that ousted the regime that intended to nationalize its extensive banana –producing lands. Anaconda’s stock bumped up before the 1973 coup in Chile that removed the threat posed by Allende. As you would expect when insider trading is a problem, the stock of these companies rose more when the secret authorization for the coup was made then they did once the coup actually happened. Given the difficulties in accessing information, they can’t prove who did the trades (government officials?, company execs?) that drove up stock prices prior to these coups, but the picture sure does beg some questions.