U.S. House Members’ Stock Outperforms Yours and Mine by 6 Percent

Opensecrets.org blog has the story.

Shocking, eh?

Maybe that fact that Congressmen have no restrictions on trading stocks of businesses represented by the lobbyists they work with everyday — maybe this is a bit of a conflict of interest, no?

And maybe the fact that Democrats get even better returns than Republicans implies that Democrats are even more in bed with Big Business than Republicans are?

Dunno. You tell me. Occam’s Razor and all that.

From the above link:

A new report suggests that U.S. House members are using their powerful roles for more than just political gain.

The academic report, titled, “Abnormal Returns from Common Stock Investments of Members of the U.S. House of Representatives,” reviews stock investments made by House members during the last nine congressional sessions. It indicates that members of Congress have a significant information advantage in making financial investments when compared to average, and even corporate, investors.

The findings were made by a team of professors after measuring abnormal returns for more than 16,000 common stock transactions made by about 300 House members from 1985 to 2001.

Congressmen are allowed to trade common stocks without special restrictions, and they do not have to recuse themselves from voting on legislation that could affect the values of their stock holdings. But, according to the report, legislation has been proposed in Congress to limit trading by members and their staffs.

Other interesting findings from the review:

  • Purchases made by House members beat the market by 55 basis points per month, or about 6 percent annually.
  • The magnitude of the abnormal returns among House members was substantially smaller than those earned by Senators during the same time span.
  • Stocks purchased by the junior representatives significantly outperform stocks purchased by the most senior representatives.
  • Stocks purchased by Democrats also outperform those purchased by Republicans.
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