New investment strategy? Copying What Members Of Congress Do

[turketron]

TikTokers Are Trading Stocks By Copying What Members Of Congress Do

So far this year, Senate and House members have filed more than 4,000 financial trading disclosures — with at least $315 million of stocks and bonds bought or sold....

...Dinesh Hasija, an assistant professor of strategic management at Augusta University in Georgia, has been studying whether the market moves based on congressional disclosures. His ongoing research suggests that it does. "Investors perceive that senators may have insider information," he said. "And we see abnormal positive returns when there's a disclosure by a senator." In other words, Hasija's research shows that after the disclosures are published, there's a bump in the price of stocks bought by lawmakers.

I'm only partially serious and mostly tongue-in-cheek, but I would be curious to see what the returns for something like this would be...
At least the article does discuss the dangers of this (even if it can never be proven that it's insider trading) and mentions having a prohibition on members of congress trading individual stocks. This seems like a no-brainer to me, but of course there's no real incentive for congress to enact this to their own detriment.

[MustacheAndaHalf]

Years ago I read about a similar strategy focused on lobbying.  The companies that lobbied the most were given the greatest weight.  The theory was that lobbying has a great return, and probably translates to advantages for the company making the contributions.  But I'm not aware of data or investments along those lines now.

[BicycleB]

Thanks for posting this!

I am curious about the trackers who are following this, and what they find. If anyone here gets more detailed about documentable investing advantages, please post. I'd be particularly interested about enduring rather than temporary advantages, and if the disclosure bump regresses to the mean.

Interesting that the theory is based on the idea that Congresspeople must be insider trading, yet the data being studied flow directly from a bill designed to stop insider trading by members of Congress. I had thought that the STOCK act, which requires the disclosures of Congressmembers' trades, was a good bill that made real advances. It made insider trading by Congressmembers illegal at long last, anyway. https://en.wikipedia.org/wiki/STOCK_Act

Also interesting that, according to the article itself, a study from before the STOCK Act found evidence of outperformance while a study the year after passage did not. Presumably the insider trading stopped for a while.

Now maybe insider trading is quietly back? Again, curious for more info if someone does a deeper dive.

[turketron]

Interesting that the theory is based on the idea that Congresspeople must be insider trading, yet the data being studied flow directly from a bill designed to stop insider trading by members of Congress. I had thought that the STOCK act, which requires the disclosures of Congressmembers' trades, was a good bill that made real advances. It made insider trading by Congressmembers illegal at long last, anyway. https://en.wikipedia.org/wiki/STOCK_Act

Also interesting that, according to the article itself, a study from before the STOCK Act found evidence of outperformance while a study the year after passage did not. Presumably the insider trading stopped for a while.

Now maybe insider trading is quietly back? Again, curious for more info if someone does a deeper dive.

I definitely think making it illegal is a good start, but illegal on paper doesn't necessarily mean it's provable or enforceable. Looking at the Imhofe/Loeffler trades earlier in the year mentioned in the article; they seem (to me) like a pretty straightforward example of insider trading but the charges were dismissed. IMO they should be required to either put their assets in a blind trust, or they shouldn't be able to trade individual stocks (but broad mutual funds would be ok).

[BicycleB]

I agree that not trading individual stocks would be a wonderful anticorruption rule. It would be much more preventive than "Fine, tell us later how you made a bundle!" :)

The trades right before COVID hit seemed like an unfair example to me. Maybe I didn't look at the dates closely enough. But people right here on this very board made profitable trades that started in February (or pre-lockdown March) based on public news that China, in February, had instituted lockdowns to try stopping a disease that spreads asymptomatically at a fast pace. I remember one commenter using exactly that reasoning, and explaining right in this forum that he had bought $3400 of SPY puts (?) for 30 days out. He sold them at a profit of a few hundred bucks (?) about a week before expiration. I remember calculating shortly afterward that if he'd sold a few days later, he would have made tens of thousands dollars because his options' expiration date was almost exactly the trough. That said, there still could be insider trading and a stronger rule against it should be instituted.