Change in Capitol: How a 60 Minutes Exposé and the STOCK Act Affected the Investment Activity of U.S. Senators

56 Pages Posted: 25 Jan 2017 Last revised: 10 Jun 2018

See all articles by Ian Cherry

Ian Cherry

University of South Florida - Department of Finance

Amanda Heitz

A.B. Freeman School of Business Tulane University

Candace Jens

Syracuse University - Whitman School of Management

Date Written: July 10, 2017

Abstract

United States Senators' equity trades outperformed the market before 60 Minutes exposed arguably unethical trading activity by Congress members, leading to the passage of the Stop Trading on Congressional Knowledge (STOCK) Act. However, all evidence of abnormal returns is limited to the sell-side of the portfolio, which is inconsistent with anecdotal evidence of Congress members supporting legislation favorable to firms in which they are invested. Pre-60 Minutes, Senators' sells were well-timed, occurring within eight weeks of drops in securities' prices and avoiding 5.4% in annualized abnormal portfolio losses. This abnormal return is concentrated in trades made before key pieces of legislation exited committee and in trades by more senior Senators and Senators sitting on more powerful committees, suggesting Senators profited from private information learned through participation in the legislative process. We find no evidence consistent with Senators' stock holdings contributing to value creation that is typically associated with firm political connections.

Keywords: STOCK Act, political process, insider trading

JEL Classification: D72, G14, K22

Suggested Citation

Cherry, Ian and Heitz, Amanda and Jens, Candace, Change in Capitol: How a 60 Minutes Exposé and the STOCK Act Affected the Investment Activity of U.S. Senators (July 10, 2017). 28th Annual Conference on Financial Economics and Accounting, Available at SSRN: https://ssrn.com/abstract=2905309 or http://dx.doi.org/10.2139/ssrn.2905309

Ian Cherry

University of South Florida - Department of Finance ( email )

Tampa, FL 33620-5500
United States

Amanda Heitz

A.B. Freeman School of Business Tulane University ( email )

6823 Saint Charles Avenue
New Orleans, LA
United States

Candace Jens (Contact Author)

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

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