Sunday, August 8, 2010

The Curious Superior Stock Performance of U.S. Senators

Stephen Bainbridge, the William D Warren Professor at UCLA School of Law, is shopping an article to the Top 50 Law reviews that is about:

A 2004 study of the results of stock trading by United States Senators during the 1990s that found that Senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to – and were using – material nonpublic information about the companies in whose stock they trade. 
Even more outrageous, Bainbridge tells us that Senators are exempt from insider trading laws, based on the type of insider trading they are doing:

Under current law, it is unlikely that Members of Congress can be held liable for insider trading. The proposed Stop Trading on Congressional Knowledge Act addresses that problem by instructing the Securities and Exchange Commission to adopt rules intended to prohibit such trading.
(Via Keith Kelly)


  1. If you are a statist, the "reasonable" conclusion to reach from such findings is that their superior stock performance comes from their superior minds and individual decision-making capabilities. Remember, these people are on top because they're better than us, and because they love us so.

  2. If they are smart enough to run the country, they must be smart enough to pick better stocks. (snicker)

  3. A more reasonable conclusion is that it takes a fair amount of cunning to get into the Senate, and that this cunning also transfers to stock-picking. I would bet good money that the CEOs of the DJIA companies are also bright enough to beat the market handsomely with their private investments.

    Interesting that you didn't note that Senators have to worry about challengers making hay of their financial dealings, which they must disclose.

  4. An even more reasonable conclusion is that they write laws (and request pork) that protect their long term investment interests (no insider trading necessary and the proposed law does not prevent that.