The March 9, 2011 seminar was led by Andy Eggers, post-doctoral fellow in the Leitner Program in International and Comparative Political Economy at Yale University. Andy presented on financial disclosure by members of Congress, and much of the seminar discussion focused on his paper, which demonstrated the surprisingly mediocre performance of Congressional stock portfolios.
Andy opened by describing some of the historical context for his research. Previous studies had been done that seemed to show that Senators continually made well-timed stock trades, seeming to indicate that they were trading on non-public information. However, Andy's research suggests a different story. The results of his study demonstrate that, overall, members of Congress are rather poor investors, but tend to have good luck with local investments. When it comes to picking stock, local connections seem to give politicians an edge.
Participants had many questions about the data used in Andy's study, as well as the implications of this research. Questions were raised about the possibility for bias in this research, and participants wondered what was done to counteract that possibility. Andy noted that while researchers in general have a bias toward finding something, in this case, they would have been interested even in a null result. They also had counteracting biases--either to find corruption, because the public would be interested in such a finding, or to find out that members of Congress simply aren't that smart when it comes to making investments. Other participants pointed out that their results raise more questions than they answer. They noted that normal investors are investing solely to get returns, but a Congressman may have a variety of motivations, including a desire to make money, as well as to curry favor. This leads one to ask whether they are losing or spending their money with their investments. Other participants concurred, noting the possibility that how members of Congress pick their stocks could be a reciprocity gesture.
Regarding the good fortune that members of Congress have with their local investments, one participant noted the likelihood that Congressmen enact laws that help local companies, who in turn make more money, and then Congressmen buy stock in those companies. Others wondered whether it might be possible to compare the investments between new freshmen, and see how their time in office shifts their investing habits.
In conclusion, seminar participants considered research demonstrating low returns for Congressional stock portfolios. They debated various explanations of these results, and considered areas for additional research.