“Captain Gains” on Capitol Hill

Department of Finance

Abstract:
Using US congressional members’ transaction-level stock trading data, we find congressional leaders shared comparable (under-)performances in stock investments with “regular” but otherwise similar members before assuming leadership positions, but outperform the latter by 40 percentage points per year after ascension to leadership. Consistent with trading on non-public legislative and corporate knowledge, leaders’ trades are especially profitable when their party controls the chamber, and when the traded firm contributed to their election campaigns or is located in their state. Importantly, leaders’ trades predict subsequent regulatory actions and corporate news items. The STOCK Act does not eliminate leaders’ abnormal returns.

Short Bio: 
Professor Zhou’s research focuses on political economy, empirical corporate finance, and bank lending. He has published in leading journals such as the Journal of Financial Economics, the Journal of Financial and Quantitative Analysis, the Journal of Corporate Finance, and the Journal of Banking & Finance. His research has been reported by New Journal of Zurich (Neue Zürcher Zeitung; NZZ) and UN Principles for Responsible Investment (PRI). Professor Zhou was the recipient of the 16th Shanghai Outstanding Achievement Award in Philosophy and Social Sciences, the 2023 Shanghai Pujiang Talent Program, and the 2021 FISF Research Excellence Award.  Professor Zhou received his Ph.D. in Finance from the University of Melbourne in 2021 and BCom (Hons) in Accounting and Finance from the University of Auckland in 2015 with the highest GPA in his cohort.