That certainly seems to be the case with our Senators and Congressmen. In one study of the securities trading by Senators in the 1990s, the authors concluded that the senators did 12% than the market. Here's the authors' conclusion:
It seems unlikely that United States Senators as a group have such unique investment skills that they can outperform not only the market as a whole but also corporate insiders over an extended period. Instead, it seems more reasonable to assume that the superior returns found by Ziobrowski result from Senatorial access to—and use of —material nonpublic information about the companies in whose stock they traded: “Looking at the timing of cumulative returns, the senators also appeared to know exactly when to buy or sell their holdings. Senators would buy stocks just before the shares suddenly would outperform the market by more than 25%. Conversely, senators would sell stocks that had been beating the market by about 25% for the past year just when the shares would fall back in line with the market’s performance.”
The conclusion for a recent study of Congressmen by the same authors found:
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).
What do you think?
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