Hey Senator, got any stock tips?

I stumbled across an older paper from 2004 (PDF):

(emphasis mine) "The actions of the federal government can have a profound impact on financial markets. As prominent participants in the government decision making process, U.S. Senators are likely to have knowledge of forthcoming government actions before the information becomes public. This could provide them with an informational advantage over other investors. We test for abnormal returns from the common stock investments of members of the U.S. Senate during the period 1993--1998. We document that a portfolio that mimics the purchases of U.S. Senators beats the market by 85 basis points per month, while a portfolio that mimics the sales of Senators lags the market by 12 basis points per month. The large difference in the returns of stocks bought and sold (nearly one percentage point per month) is economically large and reliably positive."

With the top 25 Senators worth between $2.6M to $234M, that's probably some fairly hefty gains.  If the top 25 Senators pooled their 2005 assets, they could open a hedge fund worth between $760 million to $1.4 billion - not too shabby.  With 12% + market outperformance, they would no doubt attract additional capital and hefty management fees.  The study compares the results of their study to other studies of common groups of shareholders:

• Average US household underperform the market by 12 basis points a month
• Corporate insiders outperform by 50 basis points per month
• Senators outperform by nearly 100 basis points per month

The Senators seem to not just be good stockpickers, but good timers as well:

"Cumulative abnormal returns for the portfolio of stocks bought by Senators are near zero for the calendar year prior to the date of purchase. After acquisition,the cumulative abnormal return rises over 25% within one calendar year after the purchase date. The cumulative abnormal returns for the portfolio of stocks sold by the Senators are near zero for the calendar year after the date of sale. However,these same stocks saw a cumulative abnormal positive return of 25% during the year immediately preceding the event date. These results suggest that Senators knew appropriate times to both buy and sell their common stocks."

Lest you think you might put together a lazy portfolio of Senate stockpicks, the data only appears to come out once per year and appears to be pretty stale by then, but the next report for 2006 is due May 15.   Opensecrets carries the Senator's stock picks.

Comments

[sharetipsinfo]

Hi
Your blog is quite nice and informative.
As far as stock market is concerned. Trading in market requires
both time and Knowledge. Without these two factors its impossible to trade .
If you get recommendations from some specialist then also you must keep in mind its your money you
should invest it wisely. Its always advisable to get recommendations from analyst but again before investing you should do your research also.
Indian stock market is very high already now wait for dips before going long in Nifty or in some script.

We are bullish on Indian stock market to reach new highs.. Sensex is due to kiss 15000 mark in just one month. So count on us.
We hope it has given idea that you dont have to short your positions, Just hold them for a while to see real upmovement.

Best Buy is INFOSYS

If you have any Query please feel free to contact us.

Regards n love
Sharetipsinfo team

[sharetipsnifo]

Hi Friends
Please try to recall we claimed that Sensex will touch 15000 mark very soon, We believe that we were the first one to make this claim. Now just see we .
The story doesn’t end here only.
Now we are making you beware that now trade with due care. As Nifty and Sensex will see correction now.
We are making this statement but still we request you don’t start shorting right now, and no need for panic at all. We are just making you aware that you need to take precautions.

Apart from this We would like to highlight few facts also regarding SENSEX journey to 15000 mark.

BIGGEST GAINERS

COMPANY % CHANGE
L&T 61.7
BHARTI AIRTEL 35.6
RIL 33.7
TATA STEEL 26.4
BHEL 20.4

RAGING BULLS

MILESTONES DAYS
4000-5000 2551
5000-6000 125
6000-7000 1965
7000-8000 80
8000-9000 81
9000-10000 70
10000-11000 43
11000-12000 30
12000-13000 193
13000-14000 37
14000-51000 213

Right now best buy are any IT stocks specially TCS and INFOSYS are very hot for buying.

We hope this information will be quite beneficiary for you and can be used appropriately.

Regards
Sharetipsinfo team