Given the profound impact actions of the federal government have on financial markets, U.S. congressmen should be capable of enhancing their wealth through investing on their private government information. However, existing research on U.S. congressmen's common stock trading has yielded conflicting results on whether they trade on their private information. In essay 1 of this dissertation, I reexamine whether members of Congress traded on private information from 2004-2012, and conclude that in the aggregate, they do not. However, House members perform extraordinarily well, earning abnormal returns of 8.2% for a 12-month holding period during their final term in office. This is likely due to incentives provided by the House Committee on Ethics and disinterest in reelection. Essay 2 builds on the first essay by focusing on returns to congressmen's total wealth, which captures their gains in the opaque private and real estate markets where they are more likely to act corruptly, in addition to their returns in public markets. I find that members on average earn abnormal returns to their wealth of 6.39% per year. Using the models suggested by Treynor and Mazuy (1966) and Henriksson and Merton (1981), I find that the abnormal returns to wealth are due to selectivity rather than market timing. Overall, the dissertation suggests that public financial disclosure is effective and reconfirms that incentives are important drivers of behavior. It also supports the public perception that congressmen unethically trade on private government information.
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