Congressional Stock Trading
Do Members of Congress Trade with an Information Advantage?
In C. Eggers and Hainmueller (2013), this study examines whether members of Congress exploit their political positions to gain an edge in stock trading. Previous research has suggested that both House and Senate members display remarkable timing in their trades, fueling public perceptions of widespread insider trading. However, this study challenges that consensus.
First, by reanalyzing data on congressional stock trading from 1985 to 2001 and conducting a new analysis of trades from 2004 to 2008, the authors find no evidence that members trade with an informational advantage. Second, an analysis of portfolio holdings shows that, on average, members of Congress would have achieved better returns by investing in a passive index fund. These findings suggest that unethical investing behavior in Congress, if present, is far more limited than previously thought.
Why Are Members of Congress Mediocre Investors?
In Eggers and Hainmueller (2014), the study investigates why members of Congress, despite being political insiders, often underperform as investors. The analysis explores whether this underperformance is linked to members’ political ties with public firms.
The findings reveal that members invest disproportionately in local firms and campaign contributors, and these connected investments—particularly local ones—outperform the rest of their portfolios. This indicates that their overall underperformance is not due to an excessive focus on politically motivated investments. Instead, the poor performance stems from their non-connected investments, reflecting common pitfalls of individual investors.
The study suggests that a mix of political and financial considerations shapes members’ investment behavior, though it remains unclear why they fail to capitalize more extensively on their political advantages.
