ByÂ Valerie Richardson-The Washington Times
Itâ€™s no secret that members ofÂ Congress qualify as political insiders, but a new report strongly suggests that they also may be insiders when it comes to trading stocks.
An extensive study released Wednesday in the journal Business and Politics found that the investments of members of theÂ House of Representatives outperformed those of the average investor by 55 basis points per month, or 6 percent annually, suggesting that lawmakers are taking advantage of inside information to fatten their stock portfolios.
â€œWe find strong evidence that members of theÂ House have some type of non-public information which they use for personal gain,â€ according to four academics who authored the study, â€œAbnormal Returns From the Common Stock Investments of Members of theÂ U.S. House of Representatives.â€
To the frustration of open-government advocates, lawmakers and their staff members largely have immunity from laws barring trading on insider knowledge that have sent many a private corporate chieftain to prison.
The watchdog group OpenSecrets.org said on its blog Wednesday that the findings suggest â€œthatÂ U.S. House members are using their powerful roles for more than just political gain.â€
The professors reviewed more than 16,000 common stock transactions carried out by about 300Â House members as revealed in the membersâ€™ financial-disclosure forms from 1985 to 2001.
In a 2004 study, the same professors found that U.S. senators also enjoy a â€œsubstantial information advantageâ€ over the average investor â€” and even corporate bigwigs â€” when it comes to picking stocks. The latest study shows that members of theÂ Senate outperform theirÂ Housecolleagues by an average of 30 points per month.
Despite theÂ GOPâ€™s reputation as the party of the rich,Â HouseRepublicans fared worse than their Democratic colleagues when it comes to investing, according to the study. The Democratic subsample of lawmakers beat the market by 73 basis points per month, or 9 percent annually, versus 18 basis points per month, or 2 percent annually, for the Republican sample.
â€œGiven the almost folkloric belief that Wall Street invariably favors Republicans, the superior performance of trades made by Democratic representatives may seem surprising,â€ the study authors said.
One theory is that Democrats were the majority for most of the years under review and thus held more leadership posts, giving them greater access to nonpublic information. Once they took power in 1995, Republicans may have limited their ability to profit from the perks of political power because of their lack of leadership experience.
Strict laws ban corporate executives from trading on their insider knowledge, but no restrictions exist for members ofÂ Congress. Lawmakers are permitted to keep their holdings and trade shares on the market, as well as vote on legislation that could affect their portfolio values.
The rationale is that requiring lawmakers to divest their economic holdings would â€œinsulate a legislator from the personal and economic interests that his/her constituency, or society in general, has in governmental decisions and policy,â€ according to theÂ House ethics manual.
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