Did the STOCK Act Impact the Performance, Risk, and Flow of Hedge Funds?

This research examines hedge funds’ performance, risk, and flow before and after the implementation of the Stop Trading on Congressional Knowledge (STOCK) Act. This study finds significant differences before and after the implementation of the STOCK Act. The results for the entire sample period indicate that hedge funds suffered lower-alpha, standard deviation, and idiosyncratic risk after the implementation of the STOCK Act. Consistent with other studies, the findings suggest that private, confidential information was likely passed down from congress members to the hedge fund managers through intermediary agents. Furthermore, the results indicate mixed evidence of the STOCK Act’s impact on hedge funds’ flow for most investment categories, which points to the direction that top-level hedge funds received more significant capital inflows.