House members in the know score ‘abnormal’ stock profits, study says
(Washington Times) -- by Valerie Richardson --
It’s no secret that members of Congress qualify as political insiders, but a new report strongly suggests that they also may be insiders when it comes to trading stocks.
An extensive study released Wednesday in the journal Business and Politics found that the investments of members of the House of Representatives outperformed those of the average investor by 55 basis points per month, or 6 percent annually, suggesting that lawmakers are taking advantage of inside information to fatten their stock portfolios.
“We find strong evidence that members of the House have some type of non-public information which they use for personal gain,” according to four academics who authored the study, “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives.”
To the frustration of open-government advocates, lawmakers and their staff members largely have immunity from laws barring trading on insider knowledge that have sent many a private corporate chieftain to prison.
The watchdog group OpenSecrets.org said on its blog Wednesday that the findings suggest “that U.S. House members are using their powerful roles for more than just political gain.”
The professors reviewed more than 16,000 common stock transactions carried out by about 300 House members as revealed in the members’ financial-disclosure forms from 1985 to 2001.
In a 2004 study, the same professors found that U.S. senators also enjoy a “substantial information advantage” over the average investor — and even corporate bigwigs — when it comes to picking stocks. The latest study shows that members of the Senate outperform their House colleagues by an average of 30 points per month.
Despite the GOP’s reputation as the party of the rich, House Republicans fared worse than their Democratic colleagues when it comes to investing, according to the study. The Democratic subsample of lawmakers beat the market by 73 basis points per month, or 9 percent annually, versus 18 basis points per month, or 2 percent annually, for the Republican sample.
“Given the almost folkloric belief that Wall Street invariably favors Republicans, the superior performance of trades made by Democratic representatives may seem surprising,” the study authors said...MORE...LINK