This paper examines the hypothesis that hedge fund managers gain an informational advantage in securities trading through their connections with lobbyists. Using data sets on the long-equity holdings and lobbyist connections of hedge funds from 1999 through 2012, we show that hedge funds outperform passive benchmarks by 56–93 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 Stop Trading on Congressional Knowledge (STOCK) Act became effective. Our study provides evidence on the transmission of political information in financial markets and on the value of such information to financial market participants.

Information production by shareholders is essential for proxy voting to produce efficient outcomes. We propose a stock return-based measure to capture informed voting. Our measure, the vote alpha, quantifies the extent to which a shareholder votes in the direction that the market perceives as value increasing. Using data on mutual funds’ proxy voting records, we find that the vote alpha exhibits persistence. Our main result shows that the voting pattern of high vote alpha funds positively predicts long-run abnormal stock returns following contentious votes, suggesting that these funds possess information about the shareholder value implication of contentious governance proposals.

Modern information technologies have fundamentally changed how information is disseminated in financial markets. Using the staggered implementation of the EDGAR system from 1993 to 1996 as a shock to information dissemination technologies, we find evidence that internet dissemination of corporate disclosures increases information production by corporate outsiders. Trades by individual investors, especially those with access to the internet, become more informative about future stock returns following the EDGAR implementation. The amount and accuracy of information produced by sell-side analysts increase after the implementation. These results suggest that greater and broader information dissemination facilitated by modern information technologies improves information production.