Change in Capitol: How a 60 Minutes Exposé and the STOCK Act Affected the Investment Activity of U.S. Senators
56 Pages Posted: 25 Jan 2017 Last revised: 10 Jun 2018
Date Written: July 10, 2017
United States Senators' equity trades outperformed the market before 60 Minutes exposed arguably unethical trading activity by Congress members, leading to the passage of the Stop Trading on Congressional Knowledge (STOCK) Act. However, all evidence of abnormal returns is limited to the sell-side of the portfolio, which is inconsistent with anecdotal evidence of Congress members supporting legislation favorable to firms in which they are invested. Pre-60 Minutes, Senators' sells were well-timed, occurring within eight weeks of drops in securities' prices and avoiding 5.4% in annualized abnormal portfolio losses. This abnormal return is concentrated in trades made before key pieces of legislation exited committee and in trades by more senior Senators and Senators sitting on more powerful committees, suggesting Senators profited from private information learned through participation in the legislative process. We find no evidence consistent with Senators' stock holdings contributing to value creation that is typically associated with firm political connections.
Keywords: STOCK Act, political process, insider trading
JEL Classification: D72, G14, K22
Suggested Citation: Suggested Citation