Capitol Losses: The Mediocre Performance of Congressional Stock Portfolios, 2004-2008
The Journal of Politics, Vol. 75, No. 2, April 2013, pp. 535-551
35 Pages Posted: 17 Feb 2011 Last revised: 29 Jun 2013
Date Written: August 1, 2012
Abstract
Given the well-documented effects of public policy on financial markets, one would expect political insiders to be capable of enriching themselves through savvy investing. Consistent with this, two prior studies of stock trades in Congress conclude that members of both the House and Senate easily out-perform the market, fueling the perception that corrupt "insider trading" is widespread in Congress. In this paper, we point out serious shortcomings in existing studies on congressional investing and carry out our own analysis using financial disclosure data from the 2004-2008 period. We find no evidence of either informed trading or above-market portfolio returns for Congress as a whole or any subset of members. In fact, the average investor in Congress underperformed the market by 2-3% annually during this period, suggesting that a substantial majority of members would have financially benefited from replacing their stock holdings with passive index funds. Our research suggests that widespread political "insider trading" in Congress is more myth than reality.
Keywords: corruption, Congress, legislators, insider trading, accountability, political agency
JEL Classification: G10, G11
Suggested Citation: Suggested Citation
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