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Abnormal Returns from Joining Congress? Evidence from New Members

Author

Listed:
  • Joshua C. Hall

    (West Virginia University, Department of Economics)

  • Serkan Karadas

    (Sewanee, The University of the South, Department of Economics)

  • Minh Tam T. Schlosky

    (Sewanee, The University of the South, Department of Economics)

Abstract

Past research shows that members of Congress are informed traders, i.e., that they earn abnormal returns while in office. This important research does not identify whether being elected leads to informed trading or whether informed traders are selected into office. We try to provide a partial answer to this question by looking at whether new members of Congress were informed traders prior to being elected and how their portfolio performance changes after election and appointment to different types of committees. Due to data limitations our analysis focus on the pre-congressional (i.e., election) and congressional (i.e., post-election) common stock trades made by newly elected members of Congress from 2004-2010. We find weak evidence of informed trading for the pre-Congress period, suggesting that informed traders are not being selected into office. When combined with our finding that the portfolios of members serving on powerful committees outperform the market during their second term in office, this provides additional evidence that serving on influential committees is the mechanism by which members of Congress earn abnormal returns.

Suggested Citation

  • Joshua C. Hall & Serkan Karadas & Minh Tam T. Schlosky, 2016. "Abnormal Returns from Joining Congress? Evidence from New Members," Working Papers 16-25, Department of Economics, West Virginia University.
  • Handle: RePEc:wvu:wpaper:16-25
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    File URL: http://busecon.wvu.edu/phd_economics/pdf/16-25.pdf
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    Cited by:

    1. 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.

    More about this item

    Keywords

    informed trading; congressional trading; the STOCK Act;
    All these keywords.

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