Congressional Insider Trading - by Maxwell Tabarrok
You’ve probably seen the Nancy Pelosi Stock Tracker on X or else a collection of articles and books exposing the secret and lucrative world of congressional insider trading.
The underlying claim behind these stories is intuitive and compelling. Regulations, taxes, and subsidies can make or break entire industries and congresspeople can get information on these rules before anyone else, so it wouldn’t be surprising if they used this information to make profitable stock trades.
But do congresspeople really have a consistent advantage over the market? Or is this narrative built on a cherrypicked selection of a few good years for a few lucky traders?
First is the 2004 paper: Abnormal Returns from the Common Stock Investments of the U.S. Senate by Ziobrowski et al. They look at Senator’s stock transactions over 1993-1998 and construct a synthetic portfolio based on those transactions to measure their performance.
This is the headline graph. The red line tracks the portfolio of stocks that Senators bought, and the blue line the portfolio that Senators sold. Each day, the performance of these portfolios is compared to the market index and the cumulative difference between them is plotted on the graph. The synthetic portfolios start at day -255, a year (of trading days) before any transactions happen.
