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Relief Rally: Senators As Feckless As the Rest of Us at Stock Picking

Author

Listed:
  • William Belmont
  • Bruce Sacerdote
  • Ranjan Sehgal
  • Ian Van Hoek

Abstract

We examine the stock trading behavior and returns of U.S. senators from 2012-March 2020. Stocks purchased by senators on average slightly underperform stocks in the same industry and size (market cap) categories by 11 basis points, 28 basis points and 17 basis points at the 1, 3, and 6-month time horizons. Stocks sold by senators underperform slightly for the first three months and then outperform slightly (a statistically insignificant 14 basis points) at the one year mark. We find no evidence that senators have industry specific stock picking ability related to their committee assignments. Neither Republican nor Democratic senators are skilled at picking stocks to buy, while stocks sold by Republican senators underperform by 50 basis points over three months. Stocks sold following the January 24th COVID-19 briefing do underperform the market by a statistically significant 9 percent while stocks purchased during this period underperform by 3 percent. Our findings contrast somewhat with recent news reports and studies of pre-STOCK Act (2012) returns, though are consistent with Eggers and Hainmueller (2013).

Suggested Citation

  • William Belmont & Bruce Sacerdote & Ranjan Sehgal & Ian Van Hoek, 2020. "Relief Rally: Senators As Feckless As the Rest of Us at Stock Picking," NBER Working Papers 26975, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26975
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    References listed on IDEAS

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    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
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    5. Ziobrowski, Alan J. & Cheng, Ping & Boyd, James W. & Ziobrowski, Brigitte J., 2004. "Abnormal Returns from the Common Stock Investments of the U.S. Senate," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(4), pages 661-676, December.
    6. Tahoun, Ahmed, 2014. "The role of stock ownership by US members of Congress on the market for political favors," Journal of Financial Economics, Elsevier, vol. 111(1), pages 86-110.
    7. Ziobrowski, Alan J. & Boyd, James W. & Cheng, Ping & Ziobrowski, Brigitte J., 2011. "Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives," Business and Politics, Cambridge University Press, vol. 13(1), pages 1-22, April.
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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

    JEL classification:

    • G0 - Financial Economics - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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