What explains trading behaviors of members of congress? : evidence from over 100,000 congressional stock trades

Members of Congress (politicians) are allowed to trade stocks. There is evidence in the literature showing that politicians made informed trades until at least the passage of the Stop Trading on Congressional Knowledge (STOCK) Act of 2012. In this paper, we examine the drivers of congressional stock trading by using politicians' daily stock trades (daily congressional trading) as the dependent variable. Our analysis is based on 181,029 congressional stock trades from 4630 trading days covering the period from January 2004 to June 2022. We find that politicians' stock trades on a given day are positively related to their stock trades in the previous trading days. We further document that politicians trade more when Congress is in session and when geopolitical risk is high. We also find evidence of a significant reduction in the number of buy transactions following the passage of the STOCK Act. Furthermore, we show that politicians make more buy trades when economic policy uncertainty and equity market volatility are high. The results of our study suggest that members of Congress make trades to take advantage of the overall uncertainty in economic and political environments. Our paper contributes to the literature and the public debate on congressional trading (and trading by market participants in general) by providing further transparency on the stock trading practices of members of Congress.