Thanks to Ezra Klein pointing this out, but it looks like there’s a new paper out by Andrew Eggers and Jena Hainmueller on Political Capital: The (Mostly) Mediocre Performance of Congressional Stock Portfolios, 2004-2008. In contrast to Ziobrowski, et al’s findings of market outperformance in the House and the Senate, Eggers and Hainmueller find Congressional under performance. I wondered whether a few members with concentrated portfolio positions due to their family history rather than direct investment decisions – think John Kerry’s Heinz holdings, Michael McCaul’s Clear Channel holdings, or Jane Harman’s Harman Kardon holdings – skewed the results. Apparently, they excluded Jane Harman from the analysis, which would have actually made the performance worse:
The performance of Jane Harman’s portfolio was unusually poor, largely due to a $50+ million positionin Harman Industries that dropped about 1/3 in value in January of 2008 after the release of negative news. Because of the large size of her portfolio and the consequent large downward inuence of her performanceon aggregate excess returns, we exclude her from subsequent analyses unless otherwise noted. Including Harman not surprisingly has little effect on estimates of the performance of the average member but yield lower estimated performance when we weight by portfolio size (Eggers and Hainmueller 10).
Still, as a whole, according to the findings, members of Congress have had a negative alpha of 2 to 3%. Under performance applied to almost all subgroups. Whatever the party, chamber, committee, seniority, net worth, or portfolio size, all analysis along those groupings found negative alpha. There was one subgroup analysis that did have quite the interesting alpha disparity though: pre-Congressional career. Those who were politicians before entering Congress had an alpha of -2.52% while those who had a business background had an alpha of 0.48%. The worst of the subgroups though? Lawyers, with an alpha of -4.08%.
Finally, one more finding should not surprise us: “that members’ connected investments actually outperform the rest of their portfolios” (Eggers and Hainmueller 4).