… of Representatives, that is:
A previous study suggests that U.S. Senators trade common stock with a substantial informational advantage compared to ordinary investors and even corporate insiders. We apply precisely the same methods to test for abnormal returns from the common stock investments of Members of the U.S. House of Representatives. We measure abnormal returns for more than 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001. Consistent with the study of Senatorial trading activity, we find stocks purchased by Representatives also earn significant positive abnormal returns (albeit considerably smaller returns). A portfolio that mimics the purchases of House Members beats the market by 55 basis points per month (approximately 6% annually).
Emphasis ours. That’s from a new paper by Alan Ziobrowski and co-authors, with a hat tip to Monkey Cage for pointing it out.
Not quite the 12 per cent outperformance that senators racked up during six years in the 1990s, but probably better than whatever Joe Sixpack’s got going. See this Washington Post article from last year for more.
And yes, we’re aware that the directly incriminating evidence for rampant illegal insider trading among pols is weak. Even so, we’re surprised that the data-driven stuff, circumstantial though it is, doesn’t raise more hackles. And the same goes for the peculiar legal quirks that ostensibly allow politicians to get away with it. (Though we’re not lawyers, so please do set us straight in the comments if there are legal nuances we’re missing.)
Congress has been making noises about the Stop Trading on Congressional Knowledge Act since 2006; see The Hill for more on the latest effort. But given the incentives involved and the past failed attempts, we’re not holding our breath.
Related link:
Insider trading: go for it, Senator – FT Alphaville