Congress is Insider Trading

Congress is Insider Trading

November 6, 2013 Research Insights
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(Last Updated On: January 18, 2017)

Informed Trading at Capitol Hill: Evidence from Congressional Trading

  • Serkan Karadas
  • A version of the paper can be found here.
  • Want a summary of academic papers with alpha? Check out our free Academic Alpha Database!


This paper investigates whether the members of Congress are informed traders by studying the information content of approximately 62,000 congressional common stock transactions over the 2004-2010 period via pooled regressions and transactions-based calendar-time portfolios. We present evidence that past rm-level trading activity by politicians predicts current rm-level stock returns, and this prediction is stronger for the pre-recession period and for small rms. We also document that there are abnormal returns on the powerful politicians’ portfolios constructed by longing the buy and shorting the sell transactions. The best performing group is the unsophisticated (i.e., inexperienced in trading) powerful Republicans with abnormal returns exceeding 34% on annual basis under one-week holding period. The abnormal returns decline monotonically as the holding period gets longer and they mostly disappear beyond three months. Our results imply that politicians trade on time-sensitive value-relevant information generating abnormal returns in the short-term, and the power and party membership play an important role in the distribution of value-relevant information.

Data Sources:


STOCK Act Fixes Problem…but the Government Clowns “Fixed their Problem”

The Congress booted out the section (with unanimous approval) where they had to disclose their positions online. Classic.


Why so guarded, Congress?

Nice alphas! The results depend on the holding period and weighting scheme, but there is a large amount of excess return on the table (5%++). Interestingly, Republicans are the worst offenders (see paper for details)!


What are we doing wasting our time in the private sector?

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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes,, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

  • Carl

    I wonder how well their stock brokers do?