Do Taiwanese legislators really have better investment insights than the average investor? A study conducted by the Department of Finance and International Business at Fu Jen Catholic University analyzed publicly disclosed asset declarations of legislators to create a “Legislator Stock Portfolio” and compared it with general market investment portfolios. The findings show that politicians’ stock holdings exhibit different investment characteristics in certain situations, but overall performance is not consistently better than the market.
The research tracked data from 2021 to 2023 and examined the relationship between legislators’ stock holdings and factors such as market attention, institutional investor behavior, and media exposure. It aimed to answer a long-standing question: do politicians, due to informational advantages, achieve better investment results?
Results indicate that legislators’ stock performance does not significantly outperform non-legislators, although the top 30% of re-elected legislators show better investment returns.
Congress also loves stock trading, with over half of legislators holding stocks
The study used the 10th Legislative Yuan as a sample, with 113 legislators, of whom 61 held stocks in listed companies, accounting for about 53.98%.
By political party:
Democratic Progressive Party: 36
Kuomintang: 22
Other parties: 3
The remaining 52 legislators did not hold stocks.
Regionally, legislators from Taipei, New Taipei, Taoyuan, Taichung, Tainan, and Kaohsiung had notably higher stock ownership rates. The researchers speculate this may be due to urban areas having more concentrated businesses and greater opportunities for politicians to engage with industries.
Legislator investment preferences: finance, plastics, and traditional industries
A statistical overview of industries in which legislators hold stocks, sourced from the Legislator Stock and Investment Portfolio Performance Program, shows a clear bias:
Mainly concentrated in:
For example, in the financial and insurance sector, 61.76% of legislator-held companies are in this industry, with plastics and paper industries exceeding 66%. The study suggests that politicians prefer traditional industries with lower stock price volatility and stable dividends over high-risk growth stocks.
Research shows: legislators’ stock holdings do not outperform the market long-term
Two investment portfolio models were constructed:
-
Equal-weighted portfolio (each stock has the same weight)
-
Market value-weighted portfolio (weights based on company market capitalization, similar to ETFs)
Results show that in 2021, legislators’ portfolios outperformed the general market, with a return of 35.7% compared to 28.7% for non-legislator holdings. In 2022, both experienced losses, but in 2023, the general market performed better. Overall, legislators’ stock holdings did not consistently outperform the market.
Using market value weighting, the results even show that legislators’ returns were significantly lower than the market portfolio.
Political donations and corporate directors’ political stances influence returns
Multiple studies indicate that links between corporations and political forces can impact stock prices and long-term financial performance. Academics generally agree that companies that make political donations or have directors with political backgrounds often gain advantages in policy, resources, or funding. Lin Yihong (2021) found that the higher the amount a company donates to the elected political party, the higher its cumulative abnormal returns, suggesting political donations may be a key factor influencing stock prices.
Additionally, Xu, Xu, and Yuan (2013) studied Chinese family businesses and found that politically connected firms rely less on internal cash flow, indicating political ties help companies access external funding. Wu, Wu, and Rui (2012) found that political connections impact different types of companies differently: they may lower the value and performance of local state-owned enterprises but can enhance private companies’ value and operations.
Beyond political donations, the political stance of corporate directors can also influence market evaluations. Zhang Kaiwen (2010) reported that after the Kuomintang’s victory in the 2008 presidential election, companies with directors from the Pan-Blue camp showed significant positive abnormal returns, while those with Pan-Green directors showed negative abnormal returns.
Chen Liangyu (2014) found that when legislators or government officials hold corporate stocks, regardless of party, it affects company value; after the Kuomintang’s 2012 victory, stocks invested in by Pan-Blue politicians showed higher abnormal returns than those invested in by Pan-Green politicians, indicating political shifts can trigger “victory rally” effects.
Data shows female legislators perform better in investments
The study also observed an interesting phenomenon: female legislators’ portfolios outperform those of male legislators on average. For example, in 2021, female legislators’ returns were 4.72% higher than males; in 2023, the difference increased to 6.73%. The researchers suggest this may be due to more conservative investment decisions and better risk management among women.
“Legislators’ stock focus” does not necessarily mean stocks will rise
In the U.S., requiring politicians to disclose holdings has led to discussions about figures like Nancy Pelosi. The study also tested a common hypothesis: if multiple legislators hold the same stock, does that indicate a better investment?
The results show that stocks held by multiple legislators are usually large-cap companies, but their short-term returns are not necessarily higher. These companies’ assets are on average about four times larger than those of companies held by individual legislators.
The researchers speculate that legislators tend to invest in large, stable, high-dividend companies. Following institutional investors yields better returns. Further analysis of overlaps between legislators’ holdings and “the three major institutional investors” (foreign investors, investment trusts, and proprietary traders) shows that stocks with high proprietary trader holdings perform the best, followed by foreign investors and investment trusts. The reason may be that proprietary traders, besides capital, have local information advantages and market experience.
Media attention correlates with stock price increases
Using Google Trends search volume as a proxy for “media attention,” the study found that the top 30% most searched stocks significantly outperformed others. For example, in 2021, high-attention stocks returned 49.26%, while low-attention stocks returned 27.92%. The researchers believe that increased market attention attracts more investor capital, driving up stock prices.
Does this mean Taiwanese legislators really make more money from investments? The study shows that the top 30% of re-elected legislators are the most profitable. Originally published by ABMedia.
