Capitol Losses: The Mediocre Performance of Congressional Stock Portfolios

Abstract

Given the effects of policy on financial markets, political insiders should be capable of enriching themselves through savvy investing. Consistent with this view, two widely cited studies claim that members of both the House and Senate show uncanny timing in trading stocks, fueling the public perception that corrupt “insider trading” is widespread in Congress. We call this consensus into question. First, we reinterpret existing studies of congressional stock trading between 1985 and 2001 and conduct our own analysis of trades in the 2004–2008 period, concluding that in neither period do members of Congress trade with an information advantage. Second, we conduct the first analysis of members’ portfolio holdings, showing that between 2004 and 2008 the average member of Congress would have earned higher returns in a passive index fund. Our research suggests that, if there is unethical investing behavior in Congress, it is far more limited than previous research implies.

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