TAILIEUCHUNG - Political Capital: The (Mostly) Mediocre Performance of Congressional Stock Portfolios, 2004-2008

A bond with face value Rs. 100, maturity of 3 years and a coupon rate of 10%is issued. The market interest rate at the time of purchase is 8%, and falling. The investment in this scenario promises to be attractive for the investor as it offers greater returns than the present market rate. The market price of this bond will therefore be higher than the face value. Now, if the market rate increases to 10% in the second year of the investment, the bond no longer remains attractive and the market price drops down to Rs. 90. Also note. | Political Capital The Mostly Mediocre Performance of Congressional Stock Portfolios 2004-2008 Andrew Eggers - Yale University Jens Hainmueller - Massachusetts Institute of Technology June 15 2011 We examine stock portfolios held by members of Congress between 2004 and 2008. The average investor in Congress underperformed the market by 2-3 annually during this period a finding that contrasts with earlier research showing uncanny timing in Congressional trades during the 1990s. Members invested disproportionately in local companies and campaign contributors and these political investments outperformed the rest of their portfolios local investments beat the market by 4 annually . Our findings suggest that informational advantages enjoyed by Congressmen as investors arise primarily from their relationships with local companies and that widespread concerns about corrupt and self-serving investing behavior in Congress have been misplaced. Andrew Eggers Post-Doctoral Fellow Leitner Program of Yale University. Email . Assistant Professor MIT Department of Political Science. E-mail jhainm@. The authors recognize Harvard s Institute for Quantitative Social Science IQSS who generously provided funding for this project. We thank Alberto Abadie Adam Berinsky Ryan Bubb Justin Grimmer Michael Hiscox Gary King Gabe Lenz Ken Shepsle Alberto Tomba Jim Snyder and seminar participants at Harvard MIT Princeton Stanford Yale and the London School of Economics for helpful comments. For excellent research assistance we thank Thi Theu Dinh and Seth Dickinson. We would especially like to thank the Center for Responsive Politics for sharing data. The usual disclaimer applies. I. Introduction Do members of Congress enrich themselves by picking stocks based on privileged political information There is substantial anecdotal evidence that they do. Senator Dick Durbin for example reportedly sold stocks in September of 2008 just after a closed-door meeting in which .

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