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Family ties and informed trading: evidence from Capitol Hill

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  • Serkan Karadas

    (Sewanee: The University of the South)

Abstract

Members of Congress (politicians) are required to report their own and their family members’ financial transactions to the public via periodic statements. This paper investigates the performance of portfolios owned by politicians’ family members. We construct buy-minus-sell calendar-time portfolios using 22,159 common stock transactions over the 2004-2010 period, and find that the portfolios of politicians’ spouses have annualized abnormal returns exceeding 12 % at a 1-week holding period. We also show that the portfolios of powerful politicians’ spouses outperform the market, while the portfolios of non-powerful politicians’ spouses earn only average returns. However, we further find that spouses’ portfolios underperform the market over the 2011-2014 period. Overall, our findings suggest that members of Congress shared value-relevant private information with their spouses, and that heightened public scrutiny and the Stop Trading on Congressional Knowledge (STOCK) Act of 2012 led to changes in the trading behavior of politicians and their spouses.

Suggested Citation

  • Serkan Karadas, 2018. "Family ties and informed trading: evidence from Capitol Hill," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(2), pages 211-248, April.
    • Handle: RePEc:spr:jecfin:v:42:y:2018:i:2:d:10.1007_s12197-017-9384-z
    DOI: 10.1007/s12197-017-9384-z
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    Cited by:

    1. Jan Hanousek & Hoje Jo & Christos Pantzalis & Jung Chul Park, 2023. "A Dilemma of Self-interest vs. Ethical Responsibilities in Political Insider Trading," Journal of Business Ethics, Springer, vol. 187(1), pages 137-167, September.
    2. Serkan Karadas & Minh Tam Tammy Schlosky & Joshua Hall, 2021. "Did Politicians Use Non-Public Macroeconomic Information in Their Stock Trades? Evidence from the STOCK Act of 2012," JRFM, MDPI, vol. 14(6), pages 1-18, June.

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    More about this item

    Keywords

    Informed trading; Private information; Congressional trading; The STOCK Act;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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