Political transactions, company filings, and the STOCK act

Purpose This paper aims to investigate whether the timing of US politicians’ equity transactions around corporate disclosures helps identify trades associated with abnormal returns. This paper examines whether political trading is more informative around specific types of corporate filings and whether the predictive value of such trading varies across periods of macroeconomic disruption and legislative reform. Design/methodology/approach Using disclosed congressional transactions from 2004 to 2021, the authors estimate trade-level models with politician, firm and year fixed effects. They compare purchases made within seven calendar days before key corporate filings (Forms 8-K, 10-K and 10-Q) and evaluate subsequent abnormal returns over a three-day window. They then consider all eligible Form 8-K filing dates and test whether political trading imbalances predict abnormal returns across different economic states and regulatory changes, especially before and after the passage of the STOCK Act. Findings This paper yields three main findings. First, purchases made within seven calendar days before a Form 8-K filing outperform the same politician’s other purchases by approximately 10 basis points over a three-day window. No comparable return effect is observed for purchases preceding Form 10-K or 10-Q filings. Second, political trading imbalances positively predict abnormal returns in 2009 and 2020 – periods characterized by severe economic disruption and extensive government intervention. Third, while return predictability declined immediately following the STOCK Act, a positive association reemerged during the COVID-19 crisis. Originality/value This paper demonstrates that the informativeness of political trading is state-dependent, intensifying during periods of substantial economic disruption and government intervention. These results qualify interpretations of the STOCK Act’s effectiveness, showing that the immediate post-STOCK Act decline in predictability should not be viewed as evidence of a complete or durable deterrent. More broadly, the findings of this study highlight the necessary accounting for macroeconomic and institutional context when evaluating the informational content and regulatory oversight of political stock trades.