Family ties and informed trading: evidence from Capitol Hill

Serkan Karadas ()
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Serkan Karadas: Sewanee: The University of the South

Journal of Economics and Finance, 2018, vol. 42, issue 2, No 1, 248 pages

Abstract: Abstract Members of Congress (politicians) are required to report their own and their family members’ financial transactions to the public via periodic statements. This paper investigates the performance of portfolios owned by politicians’ family members. We construct buy-minus-sell calendar-time portfolios using 22,159 common stock transactions over the 2004-2010 period, and find that the portfolios of politicians’ spouses have annualized abnormal returns exceeding 12 % at a 1-week holding period. We also show that the portfolios of powerful politicians’ spouses outperform the market, while the portfolios of non-powerful politicians’ spouses earn only average returns. However, we further find that spouses’ portfolios underperform the market over the 2011-2014 period. Overall, our findings suggest that members of Congress shared value-relevant private information with their spouses, and that heightened public scrutiny and the Stop Trading on Congressional Knowledge (STOCK) Act of 2012 led to changes in the trading behavior of politicians and their spouses.

Keywords: Informed trading; Private information; Congressional trading; The STOCK Act (search for similar items in EconPapers)
JEL-codes: G12 G14 G18 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s12197-017-9384-z

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