Senators are not particularly adept at picking stocks, according to a working paper by Dartmouth researchers.
The paper examines the stock trading behavior and returns of senators from 2012 through March 2020. This time frame captures transactions the lawmakers made since the enactment of the Stop Trading on Congressional Knowledge Act (STOCK Act), a measure that was passed by a Republican House and Democratic Senate and signed into law by President Barack Obama in 2012.
The STOCK Act says lawmakers have a duty to Congress, the government and American citizens not to trade while in possession of material, nonpublic information they receive in their capacity as members of Congress. The law also established a requirement for members to report their securities transactions — exceeding $1,000 — within 45 days of the trade execution. These periodic transaction reports also extend to include spouses and dependent children of the lawmaker. Members need not disclose periodic transaction reports of widely held funds, such as mutual funds or exchange-traded funds (ETFs).
Bruce Sacerdote, an economics professor at Dartmouth College, co-authored the paper with two students: William Belmont and Ian Van Hoek. They said stocks bought by senators, on average, slightly underperform securities in the same industry and size categories by 11 basis points, 28 basis points and 17 basis points at the 1,3, and 6-month time horizons.
Securities sold by senators narrowly underperform for the first three months and slightly outperform at one-year.
“The real thrust of the paper is these trades look very typical,” Sacerdote said. “They don’t seem to be particularly well-informed. There doesn’t seem to be an indication that senators are doing tremendously well because they’re trading in industries that are under their purview”
Whether the STOCK Act has been effective in deterring outliers is another question.
There has been immense attention on senators who made substantial stock trades following nonpublic coronavirus briefings, in particular, Sens. Richard M. Burr, whose trades are being examined by the Department of Justice, and Kelly Loeffler. The paper finds that stocks sold after a Jan. 24 briefing on the coronavirus underperform the market by “a statistically significant” 9 percent, while stocks bought during this time underperform by 3 percent.
“We don’t find a strong connection between a senator’s committee assignment and returns,” Sacerdote said.
Sen. Shelby: Still Chairman of the Board
Sen. Richard C. Shelby filed his annual financial report on April 21. The Alabama Republican has — since 1974 — served as a director for Tuscaloosa Title Company, Inc., a private corporation for which Shelby, who is chairman of the board, holds between $1 million and $5 million in non-public stock. He made between $100,000 and $1 million in dividends from those securities in 2019.
No arrests, again
For the third straight week, the Capitol Police made no arrests, due, in part, to social distancing measures to combat the spread of the coronavirus.