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.
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