House members in the know score ‘abnormal’ stock profits, study says

by
May 26, 2011

By Valerie Richardson-The Washington Times

It’s no secret that members of 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 the 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.

“We find strong evidence that members of the House have some type of non-public information which they use for personal gain,” according to four academics who authored the study, “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives.”

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 “that U.S. House members are using their powerful roles for more than just political gain.”

The professors reviewed more than 16,000 common stock transactions carried out by about 300 House members as revealed in the members’ financial-disclosure forms from 1985 to 2001.

In a 2004 study, the same professors found that U.S. senators also enjoy a “substantial information advantage” over the average investor — and even corporate bigwigs — when it comes to picking stocks. The latest study shows that members of the Senate outperform their Housecolleagues by an average of 30 points per month.

Despite the GOP’s reputation as the party of the rich, 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.

“Given the almost folkloric belief that Wall Street invariably favors Republicans, the superior performance of trades made by Democratic representatives may seem surprising,” 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 of 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 “insulate a legislator from the personal and economic interests that his/her constituency, or society in general, has in governmental decisions and policy,” according to the House ethics manual.

To read more, visit: http://www.washingtontimes.com/news/2011/may/25/house-members-stock-market-success-questioned/

 

No comments yet - you can be the first!

Leave a Reply

Your email address will not be published. Required fields are marked *

Keep the Fake News Media in check.

Don’t let the MSM censor your news as America becomes Great Again. Over 500,000 Americans receive our daily dose of life, liberty and pursuit of happiness along with Breaking News direct to their inbox—and you can too. Sign up to receive news and views from The 1776Coalition!

We know how important your privacy is and your information is SAFE with us. We’ll never sell
your email address and you can unsubscribe at any time directly from your inbox.
View our full privacy policy.