From the WSJ:

A study suggests that U.S. senators possess stock-picking skills that even the most seasoned money manager would envy. During the boom years of the 1990s, senators’ stock picks beat the market by 12 percentage points a year on average, according to the study. Corporate insiders, meanwhile, beat the market by about six percentage points a year, while U.S. households underperformed the market by 1.4 percentage points a year on average, according to separate studies. The final details of the study will be published in the December issue of the Journal of Financial and Quantitative Analysis. …

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.

I wonder how many government officials made money off ImClone using the same “inside information” that sent Sam Waksal to jail?

The researchers say senators’ uncanny ability to know when to buy or sell their shares seems to stem from having access to information that other investors wouldn’t have. “I don’t think you need much of an imagination to realize that they’re in the know,” says Alan Ziobrowski, a business professor at Georgia State University in Atlanta and one of the four authors of the study.

Senators, for example, are likely to know which tax legislation is apt to pass and which companies might benefit. Or a senator who sits on a certain committee might find out that a particular company soon will be awarded a government contract or that a certain drug might get regulatory approval, says Prof. Ziobrowski.


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