Graduation Year

Spring 2013

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics-Accounting

Reader 1

Eric Hughson

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Terms of Use for work posted in Scholarship@Claremont.

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© 2013 Stacie K. Hettrick

Abstract

The decisions of the federal government such as new legislation, bills and reforms can have serious implications for the financial markets, especially in terms of corporate profitability and shareholder value. As the overseers of federal agencies, U.S. Senators are arguably the most important participants in these decision making processes, in addition to being the most informed investors in the market. As such, Senators may be able to capitalize on their superior networks and information through stock trading. The portfolios traded on such insider information should generate abnormal returns against the market index.

This study conducts an analysis of the abnormal returns on common stock purchases reported by U.S. Senators between 1995 and 2012. This paper recreates congressional buy portfolio using a consistent methodology throughout the entire sample period considered by earlier studies. While the sample size is reduced, the methodology used in this analysis relies on actual transactions dates to maximize accuracy. An analysis of the abnormal returns of the common stock investments of U.S. Senators during the period 1995 – 2012 shows that Senators are generally poor investors: purchases made by senators underperform the market index by approximately 3% a year.

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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