Congressional Insider Trading: An Analysis of the Personal Common Stock Transactions of U.S. Senators

I have examined the common stock investments made by members of the U.S. Senate between 2006 and 2009. I find that the average stock portfolio in the Senate exhibits one and two year cumulative abnormal returns (CARs) of -0.15 % and 0.43%, respectively. This suggests that members of the Senate are not trading on insider knowledge as indicated by one previous researcher who calculated a one year CAR of 25%. However, my findings are in line with another previous researcher who found a one year CAR of about -2% and concluded that Congressmen are not trading on inside information. I also examine election-year trades made by senators who lose a reelection bid. This cashing out effect amounts to a CAR of 0.43% during the first year post loss, but after two years these trades exhibit a CAR of -0.03%. The cashing out group performs no better than the group as a whole, indicating that this group did not use their informational advantage to profit during the lame duck session.