Trading on the Hill: Can Investors Profit from Mimicking U.S. Congressional Stock Trades?

Sammanfattning

This study examines whether stock purchases disclosed by U.S. House members generatepositive abnormal returns following public disclosure, and whether an outside investor canearn risk-adjusted alpha by mimicking those purchases. We analyse a main sample of 5,225events from January 2020 through December 2024 using an event study anchored on thedisclosure date and a calendar-time mimicking portfolio benchmarked against theFama–French three- and five-factor models with Newey–West standard errors. We find nosupport for either positive-return hypothesis. Cumulative abnormal returns are significantlynegative at 20- and 40-day horizons, and calendar-time portfolio alpha is negative across allfactor models and weighting schemes. After transaction costs, the equal-weighted portfolioearns a marginally significant negative alpha of –40 basis points per month under the primarythree-factor specification. The results are consistent with the absence of an exploitablepost-disclosure signal, as predicted by semi-strong market efficiency. A sub-sample analysisfinds that the negative result is concentrated among Democratic members’ disclosedpurchases, while Republican members’ purchases generate near-zero risk-adjusted returns.The findings suggest that publicly disclosed House purchases did not provide a profitable rawsignal to outside investors during a period of unusually high public attention to congressionaltrading.