Location, Location, Location: Senate Trading and Seat Proximity

We examine the source and flow of private information between U.S. Senators used for trading. We find that when two Senators sit closer together in the Senate Chamber, they are more likely to trade stocks in the same industry. This association disappears when Senators are away campaigning before re-election. We find no evidence consistent with co-trades being driven by Senators’ sharing public news. Rather, our results suggest Senators share private information, as the association between seating proximity and co-trading varies with the scrutiny Senators face, and co-trades executed by Senators that sit closer together are on average profitable. Furthermore, cross-sectional variation with industry oversight suggests that Senators share private information gleaned from their positions in Congress. An event study analysis around Senate committee hearing dates supports this inference. Moreover, we provide evidence that Senators appear to receive career benefits (in the form of powerful committee assignments) from sharing private information. Overall, our results illuminate how private political information moves through networks and into capital markets and speak to recent calls for restrictions on Senators’ stock trading.