Do Congressional Reps Beat the Market With Inside Info?

House of representativesInformation is power, and members of the U.S. House of Representatives sit on a gold mine of it. Their seats on Congressional committees give them an inside view of the companies they regulate through legislation. This can be profitable information to anyone trading stocks -- and it should go without saying that our legislators should not be able to profit from that advantage.

However, statistically at least, it appears that some members of the House have used that information for their own stock market gain.

A Random Walk Down Pennsylvania Avenue

A study published this year, entitled Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives, found that stocks purchased by House members from 1985 through 2001 "earn statistically significant positive abnormal returns."

How abnormally positive are we talking? According to the study, House members outperformed the market by more than six percentage points a year.

Senators, it turns out, are even better stock pickers than both their colleagues in the House of Representatives and professional money managers. An earlier work by the authors of the House study showed that a portfolio made up of the common stocks owned by U.S. Senators between 1993 and 1998 outperformed the market by about 10 percentage points a year. According to the paper, those are "some of the highest excess returns ever recorded over a long period of time, significantly outperforming even hedge fund managers."

Is Deep Throat Giving Hot Stock Tips?

The study suggests that the senators' better return comes not from a higher investing acumen than House members, but from their greater power to affect legislation.

One senator out of 100 will have more relative power than one representative out of 435. And apparently, those senators aren't shy about using their power. In years where direct comparisons could be made, 27% of the senators purchased common stocks, as opposed to 16% of representatives.

Senators also seemed to have better information on when to sell. The reps' common stock investments gained significantly in value even after being sold. But the upward momentum of senators' investments tended to peter out after they sold.

Which Party Gained More?

If you believe that the Republicans have more in common with Wall Street than the other party does, well, surprise! Democrats' investments outperformed the Republicans' in both the House and Senate study. The authors hasten to add that "party affiliation is statistically significant only in the House of Representatives."

They also say that outcome may have more to do with which party is in power during the periods of the studies than anything else. After all, the majority party does get the committee chair positions, and with them, more power.

Significantly, both studies found that seniority plays a role in trading success -- but in a way opposite of what one might assume. The most junior House members and Senators tend to do better than their more senior colleagues. Maybe the juniors are just hungrier than their elders. Or perhaps they just eventually become so powerful that they no longer wish to invite closer scrutiny of their investments. As Alan J. Ziobrowski, one of the authors of the study, told the New York Times, "At some point, it could be that the risk isn't worth the return, if you know what I mean."

Motley Fool contributor Dan Radovsky is not a member of Congress, but he hopes for the same returns.

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stevenmathis123

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July 29 2011 at 7:41 AM Report abuse rate up rate down Reply
chris1011

Bill Maher's new rule:

How about this for a New Rule: Not everything in America has to make a profit. It used to be that there were some services and institutions so vital to our nation that they were exempt from market pressures. Somethings we just didn't do for money. The United States always defined capitalism, but it didn't used to define us. But now it's becoming all that we are.

Did you know, for example, that there was a time when being called a "warprofiteer" was a bad thing? But now our war zones are dominated by private contractors and mercenaries who work for corporations. There are more private contractors in Iraq than American troops, and we pay them generous salaries to do jobs the troops used to do for themselves ­-- like laundry.War is not supposed to turn a profit, but our wars have become boondoggles for weapons manufacturers and connected civilian contractors.

Prisons used to be a non-profit business, too. And for good reason --­ who the hell wants to own a prison? By definition you're going to have troublewith the tenants. But now prisons are big business. A company called the Corrections Corporation of America is on the New York Stock Exchange, which is convenient since that's where all the real crime is happening anyway.The CCA and similar corporations actually lobby Congress for stiffer sentencing laws so they can lock more people up and make more money. That's why America has the world's largest prison population ­-- because actually rehabilitating people would have a negative impact on the bottom line.

Television news is another area that used to be roped off from the profit motive. When Walter Cronkite died last week, it was odd to see news anchorafter news anchor talking about how much better the news coverage was backin Cronkite's day. I thought, "Gee, if only you were in a position to do something about it."

But maybe they aren't. Because unlike in Cronkite's day, today's news has to make a profit like all the other divisions in a media conglomerate.That's why it wasn't surprising to see the CBS Evening News broadcast livefrom the Staples Center for two nights this month, just in case Michael Jackson came back to life and sold Iran nuclear weapons. In Uncle Walter's time, the news division was a loss leader. Making money was the job of TheBeverly Hillbillies. And now that we have reporters moving to Alaska to hang out with the Palin family, the news is The Beverly Hillbillies.

And finally, there's health care. It wasn't that long ago that when a kid broke his leg playing stickball, his parents took him to the local Catholic hospital, the nun put a thermometer in his mouth, the doctor slapped someplaster on his ankle and you were done. The bill was $1.50, plus you got tokeep the thermometer.

But like everything else that's good and noble in life, some Wall Streetwizard decided that hospitals could be big business, so now they're run by some bean counters in a corporate plaza in Charlotte. In the U.S. today, three giant for-profit conglomerates own close to 600 hospitals and other health care facilities. They're not hospitals anymore; they're Jiffy Lubeswith bedpans. America's largest hospital chain, HCA, was founded by the family of Bill Frist, who perfectly represents the Republican attitude toward health care: it's not a right, it's a racket. The more people who getsick and need medicine, the higher their profit margins. Which is why they're always pushing the Jell-O.

Because medicine is now for-profit we have things like "recision," whereinsurance companies hire people to figure out ways to deny you coverage when you get sick, even though you've been paying into your plan for years.

When did the profit motive become the only reason to do anything? When did that become the new patriotism? Ask not what you could do for your country,ask what's in it for Blue Cross/Blue Shield.

If conservatives get to call universal health care "socialized medicine," I get to call private health care "soulless vampires making money off humanpain." The problem with President Obama's health care plan isn't socialism, it's capitalism.

And if medicine is for profit, and war, and the news, and the penal system,my question is: what's wrong with firemen? Why don't they charge? Theymust be commies. Oh my God! That explains the red trucks!

Bill Maher

July 28 2011 at 6:07 PM Report abuse rate up rate down Reply
tebad

Brickhead,
Dude, you need some professional help!
I'm pissed off as well, I have lost everything in this mess,
but you are a little too far gone man!

July 28 2011 at 4:46 PM Report abuse +1 rate up rate down Reply
Brickhead

How Many?
• How many Death threats from Satan to the Wall Alley PIGGS & their bloodlines?
Not Enough – NUKES are coming. Praise the Kingdom of Christ for your cleansing PIGGS.
• How many NYC Killed from the Nukes – 5 million and counting
• How many Wall Alley buildings standing – ZERO
• How many ********* daily by bitches on Wall Alley that spread their legs for Satan
Satan gives them an INFINITE amount and they LUv it
• How many bastards that get the anal serpentine trident of Satan –
Satan gives them an INFINITE anal cleansing and they LUv it.
• How many Wall Alley PIGGS children RIPPED to SHREDS by Satan – Satan Takes ALL.
The Great Satan, the American Wall Alley PIGG and all Financial Institutions, Hedge Funds, MM’s
BrokeRAGES AND THERE TRADING PROGRAMS ripped OUT THEIR ASSES BEFORE Satan consumes their souls and spits it on the British PIGG for their CAN BE ONLY 1 PIGG – Wall Alley PIGGS.

July 28 2011 at 4:22 PM Report abuse -4 rate up rate down Reply
1 reply to Brickhead's comment
savemycountry911

Terrorist nut job.

July 28 2011 at 9:43 PM Report abuse rate up rate down Reply
Brickhead

Everyone knows that anything the daarck knight team buys does not make money.
Because of Wall Alley MM PIGGS mark and Satan marks the PIGGS.
E-Trade, Fidelity, Wells Fargo, Ameriprise Brokerages, NYSE, ARE ALL under intense scrutiny by the FBI & SEC and people ARE loosing their lives – it’s just NOT published. 5000 FBI agents were just added.
We buy stocks along with the FBI & SEC as a placeholder as we do many.
CAMP, GS, BP, F, ETFC & AA are the latest.
Could be over the next 10 years the only place these stocks go is sideways or down.
Because this is your corrupt stock market today. Corruption across the Red Plague board includes the Federal Reserve.
However, Satan has other things in mind FOR THE ENTIRE WALLY ALLEY WORLD. Wonderful things for the wall alley PIGGS to come from Satan.
Satan weds U Wall Alley PIGGS and he has a GIFT 4 U.
Your laughter will be returned to U in the form of something MUCH LOUDER & stupendous PIGGS.
EVIL Man goes no where in 2011, 201x, 201 and Satan rewards his PIGGS, but there can be
ONLY 1 PIG Little piglets #1 pork barbecue hot n’ spicy is how Satan likes them.
Satan hates children. Because they show promise.
Wall Alley once promised to work for the people.
Now they promise this to Satan. sATan luvs u even more.
Kisses coming

July 28 2011 at 4:22 PM Report abuse -3 rate up rate down Reply
Brickhead

WE SEE
Dead People –
5 million across NYC
The smell of Satan’s Stench and the burning of 2 leggeds across NYC & Wall Alley PIGGS
Wall Alley PIGGS Gone
$1 Billion Fine – Fidelity PIGGS
$1 Billion Fine – Wells Fargo PIGGS
$1 Billion Fine Ameriprise PIGGS
$1 Billion Fine E-Trade PIGGS
$1 Billion Fine CNBC & OFF THE AIR Piglets as they wait for their Idol & God – Satan.
Middle East Koranieville after ju ju bees of Wall Alley PIGG AND GET THEM.
Russia & China realize American PIGGS shorted their monetary illegally along with Middle and lower America because they are PIGG traders and traders of treason.
China Russia polish NUKES …………Satan GETS IT ON.
Wall Alley 2 legged PIGGS found with so much of Satan’s spew in belly not even an Industrial PUMP can get it out.
Something WONDERFUL about to happen.
CONTINUOUS busts across the the Wall Alley by FBI & US Militia and forced entry at the PIGGS illegal homes that were bought with illegal money. U are ALL DEAD PIGGS. The Wall Alley PIGG mafia GETS NUKED IN NYC and 200 million Americans CANNOT wait for Satan to cananbalize his PIGGS. Beware NYC PIGGS – paranoid before u enter and before u leave that building, but no matter as YOUR HOMES PIGGS ARE NOW OURS. WE KNOW WHERE ALL U RED PLAGUE and Wall Alley PIGGS live. Try keeping 200 million out.
China, Russia – Nuke these American PIG bitches – the sooner the MORE WONDERFUL.
Radiate the PIGGS
The LAUGHING STOCK UNETHICAL PIGG OF THE WORLD – Wall Alley and a big blackhead in America that needs to be wiped out TODAY. The money does NOT matter to America. Only the PIGGS DEATHS do.

July 28 2011 at 4:21 PM Report abuse -3 rate up rate down Reply
Frank Ellis

These comments are interesting, but what about the current situation of 535 individuals deliberating causing a 5% drop in the stock market in five days. They knew in advance that they would persist in causing the little stock holder to panic and seel off at a loss. Not much volumn, so the big money is not selling. Knowing in advance that these 535 have agreed to not agree until the market reaches their predetermined level for buying, they are prepared to take advantage of their manipulation when the little folks sell sufficiently to lower the level. Since the volumn is low, it is apparent that small investors are driven by fear, but there are no buyers, because small buyers are fearful, and the big money is waiting on the signal from Congress that the predetermined level has been reached. Right after the volumn picks up, an agreement will be announced and sent for the president's signature. When there are no buyers, the law of supply and demand is the causation driving the prices down to the level predetermined by the gang of 535. There is no greater insider information than the present deliberate knowledge that they would not allow any agreement until reaching their goal of a decimated market and small investor. Any investor who votes for any incumbent merely demonstrates a willingness to cause more stock market havoc during the next term period. When the last investor that can be wrung out by fear has given up, and no one else is willing to sell, the pendalum will reverse. The fraud of news talking up the "problem" to instill fear is part of the power that is conspiring to achieve its own personal financial goals. A finger is on the pulse, and that inside knowledge will ripple through the gang of 535 and its friends when the final pulse dies.

July 28 2011 at 4:18 PM Report abuse +1 rate up rate down Reply
asr3krav

There is no doubt in my mind that OUR representatives in Washington can and do profit from the information they hear while in office. Within this month, I read an article on AOL that called reader's attention to the large number of Senators and Congressmen who have become millionairs after being elected and gone to Washington to represent US. Search out this article;read and weep. The solution is simple and clear. TERM LIMITS ! If term limits is good for the President and Vice President,why shouldn't it be required for our representatives ? New and fresh ideas are needed to guide our representatives. Nowhere in our Constitution is it written that these jobs are for life.However,look at the men standing before the cameras who have already served more than two terms in office.There ideas are old and of another age. Go home,enjoy your ill gained millions and make room for younger,fresher,and patriotic Americans who wish to serve the people of our country. Let's shout for TERM LIMITS. That's the cure to a bad problem !

July 28 2011 at 4:12 PM Report abuse +1 rate up rate down Reply
ironcyde

Dan- This is 1 of te dumbest headlines ever ! You know HD well they do... Why waste our tme when you should have done some good ol' fashioned investigative journalism into HOW they continually get away w/ it... the entire process ! Good god.

July 28 2011 at 4:06 PM Report abuse rate up rate down Reply
goldaxe

SHHHHHHHH........They will write A law that makes it legal,and of coarse give themselves another pay raise.

July 28 2011 at 4:04 PM Report abuse rate up rate down Reply