Does Congress Outperform the Market?

Stock trading by members of Congress has been a hot topic since January 2020, when several senators came under heat for allegedly selling millions in stocks shortly after a non-public committee hearing on the potential impact of Covid-19 on the United States. Since we started scraping and publishing data on Senate and House stock transactions, we have seen lots of interest from our users on the trading activity of members of Congress.

This begs the question, do these stock transactions provide lucrative insights from the deep web of DC bureaucracy, or is it all just noise? In this newsletter, we’ll investigate stock transactions since 2016 by U.S. Senators and Representatives to better determine their actual performance and how this data can be applied to your own trading decisions.

Have Senators' trades outperformed?

To start, let's compare the relative performance of stocks being bought and sold by U.S. Senators. The graph below tracks the average excess return of stocks purchases vs. sales by US Senators over different time periods.

We can also see stocks' return in the month following purchases/sales by US senators using the visualization below

Based on these visualizations, stocks bought by US senators seem to have outperformed assets sold in the short-term, but the difference becomes less significant in the long-term.

The best way to interpret trades is perhaps within the context of other trading done by the politician in question. For example, the reason that Richard Burr's sell-off in January of 2020 caught our attention was because it was a much larger move than anything we had seen from him before. Below is a visualization we published in 2020 to visualize the phenomenon.

Another thing to look for is multiple lawmakers entering positions in a certain stock in quick succession. To give a recent example, on Nov. 20, 2020 Senator Thomas Carper purchased Intellia Therapeutics (NASDAQ: NTLA) for approximately $32.34 a share. NTLA is a biotech company based out of Cambridge Massachusetts with a focus on CRISPR gene editing systems. Just over a week later, Rep. Donald Sternoff Beyer Jr. also opened a new position in Intellia. Since their purchases, NTLA has risen well over 300% to $176.78 a share as of 09/03/21. 

Have Representatives' trades outperformed?

Looking at trading by US representatives, we see almost no difference in the short-term returns of stocks bought vs. stocks sold. Representatives are typically in a position of less power and influence than senators, but we might still expect that there are instances where they have an information edge over the rest of us.

One way of gauging a politician's access to information is by looking at what committees they are sitting on. To give an example, here's a look at the performance of solar panel and battery provider, Sunrun (NASDAQ: RUN), following it's purchase by Rep. Alan Lowethal:

When looking at Alan Lowenthal's background we can see he's been on the House Committee on Natural Resources since 2017, whose primary function is to consider legislation on American energy production. With Lowenthals unique insight, he would be in prime position to see any potential catalysts for a company like RUN who could stand to benefit from favorable government regulation and/or subsidies.

Conclusion

Trading by US politicians is too diverse to prescribe any single conclusion to every trade. Some politicians have all their assets run by independent investment managers while some appear to put almost as much thought into their portfolio as they do their legislative work.

With that being said, by examining the context around certain transactions, you can find places where politicians' information edge shines through. We think that Congressional Trading is worth paying attention to, especially transactions made by U.S. Senators.

You can stay on-top of Senate and House transactions at quiverquant.com, and with the Quiver Quantitative app (now available on both Android and iOS).

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