Alan Ziobrowski, James Boyd, Ping Cheng, and Brigitte Ziobrowski write:
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).
Interesting. No graphs whatsoever and I don’t have the energy to try to read all the little numbers. But I’ll put it out there for you to evaluate.
{ 3 comments… read them below or add one }
Aren’t some government officials forbidden from trading stock while in office?
but also see:
http://www.mit.edu/~jhainm/Paper/Eggmueller2010.pdf
Political Capital: The (Mostly) Mediocre Performance of Congressional Stock Portfolios, 2004-2008
Andrew Eggers – Yale University
Jens Hainmueller – Massachusetts Institute of Technology
January 6, 2011
We examine stock portfolios held by members of Congress between 2004 and 2008. The average investor in Congress underperforms the market by 2-3% an- nually, a finding that contrasts with earlier research showing uncanny timing in Congressional trades. Members also invest disproportionately in local compa- nies and campaign contributors, and these “political” investments outperform the rest of their portfolios (local investments beat the market by 4% annually). Our findings suggest that informational advantages enjoyed by Congressmen as investors arise primarily from their relationships with local companies, and that widespread concerns about corrupt and self-serving investing behavior in Congress have been misplaced.
They don’t actually show politicians using their information advantage.
Better study and blog post found here:
http://www.freakonomics.com/2011/05/25/politics-pays-evidence-of-insider-trading-among-congressmen/