Senators Make the Best Investors

A 2004 study of the results of stock trading by United States Senators during the 1990s found that that Senators on average beat the market by 12% a year. In sharp contrast, U.S. households on average underperformed the market by 1.4% a year and even corporate insiders on average beat the market by only about 6% a year during that period. A reasonable inference is that some Senators had access to—and were using—material nonpublic information about the companies in whose stock they trade.

Stephen M. Bainbridge’s Insider Trading Inside the Beltway looks at the 2004 study and the law, concluding it is unlikely that Members of Congress can be held liable for insider trading.

Yes, a host of Congressional committee chairmen and ranking members have millions invested in business sectors they are charged with overseeing. They not only have better access to nonpublic information, they also have the power to delay a bill until they buy more stock.

The current version of the Stop Trading on Congressional Knowledge Act would:

  • Prohibit Members or employees of Congress from buying or selling stocks, bonds, or commodities futures based on nonpublic information they obtain because of their status;
  • Prohibit Executive Branch employees from buying or selling stocks, bonds or commodities futures based on nonpublic information they obtain because of their status;
  • Prohibit those outside Congress from buying or selling stocks, bonds, or commodities futures based on nonpublic information obtained from within Congress or the Executive Branch;
  • Prohibit Members and employees from disclosing any non-public information about any pending or prospective legislative action obtained from a member or employee of Congress for investment purposes;
  • Require Members of Congress and employees to report the purchase, sale or exchange of any stock, bond, or commodities future transaction in excess of $1,000 within 90 days. Members and employees who choose to place their stock in holdings in blind trusts or mutual funds would be exempt from the reporting requirement.

Bainbridge points to several loopholes in the proposed Act and recommends reasonable solutions.

, ,

Comments are closed.

Powered by WordPress. Designed by WooThemes