Want Better Performance From Your Portfolio? Watch
By Alice Shaw
Contributing Writer
Want to increase the returns from the common stock investments in your retirement portfolio?
Then get yourself elected to Congress.
A study by four university researchers published in the most recent issue of “Business and Politics” found that common stock transactions made by some 300 House of Representative delegates from 1985 to 2001 “earned significant positive abnormal returns (and that) a portfolio that mimics the purchase of House members beats the market by 55 basis points per month (approximately 6% annually).”
An earlier study by some of the same researchers showed that members of the U.S. Senate did even better. The researchers said their study showed that U.S. Senators’ portfolios show some of the highest excess returns ever recorded over a long period of time, significantly out-performing even hedge fund managers. The researchers noted that “a portfolio that mimics the purchases of U.S. Senators outperforms the market by 85 basis points per month (approximately 10 percent per year).”
“The positive abnormal returns for Senate stock acquisitions,” the researchers said, “are both economically large and statistically significant.”
Until now, there had been no similar study of the House of Representatives. The newest study attempts to fill that gap. The new study noted that members of the U.S. House of Representatives need not divest themselves of common stock when they assume office, are permitted to trade common stock freely while in office and are not required to recuse themselves on voting that could impact the value of their common stock holdings. But, the study emphasized, members of Congress may not use confidential information obtained in the performance of their government duties for personal gain.
Legislation also has been proposed in Congress which would limit stock trading by members of Congress and their staff. The Stop Trading on Congressional Knowledge (STOCK) bill has been the subject of several congressional hearings. The researchers said the bill provided “additional motivation for this study.”
They also said that by any of several different measurements the members of House earned “statistically positive abnormal returns.”
In both the Senate and the House, stocks purchased by the junior members with the least seniority significantly outperformed stocks purchased by the most senior members. As in the Senate, the study noted, stocks purchased by Democrats outperformed stocks purchased by Republicans. “But unlike the Senate,” the researchers said, “in the House of Representatives the difference between parties was not statistically significant.”
Researchers said the reason why junior members of Congress buy more stock is that the senior leaders may lack motive.
They said: “It is no secret that money is the life blood of politics. Whereas representatives with the longest seniority have no trouble raising funds for campaigns, junkets and whatever other causes they may deem desirable..., the financial position of a freshman Congressman is far more precarious. His or her position is by no means secure financially or otherwise. House members with the least seniority may have fewer opportunities to trade on privileged information but they may be the most highly motivated to do so when the opportunities arise.”
The researchers said they found “strong evidence that members of the House have some type of non-public information which they use for personal gain” and that “further research is warranted and...Congressional committees should take action on the issues.”
The researchers said the voting public can find out how their representatives have invested their money by examining their Financial Disclosure Reports, which must be submitted annually and are public information. Voting records are officially available in the Congressional record and also available on-line at various websites.
By Alice Shaw
Contributing Writer
Want to increase the returns from the common stock investments in your retirement portfolio?
Then get yourself elected to Congress.
A study by four university researchers published in the most recent issue of “Business and Politics” found that common stock transactions made by some 300 House of Representative delegates from 1985 to 2001 “earned significant positive abnormal returns (and that) a portfolio that mimics the purchase of House members beats the market by 55 basis points per month (approximately 6% annually).”
An earlier study by some of the same researchers showed that members of the U.S. Senate did even better. The researchers said their study showed that U.S. Senators’ portfolios show some of the highest excess returns ever recorded over a long period of time, significantly out-performing even hedge fund managers. The researchers noted that “a portfolio that mimics the purchases of U.S. Senators outperforms the market by 85 basis points per month (approximately 10 percent per year).”
“The positive abnormal returns for Senate stock acquisitions,” the researchers said, “are both economically large and statistically significant.”
Until now, there had been no similar study of the House of Representatives. The newest study attempts to fill that gap. The new study noted that members of the U.S. House of Representatives need not divest themselves of common stock when they assume office, are permitted to trade common stock freely while in office and are not required to recuse themselves on voting that could impact the value of their common stock holdings. But, the study emphasized, members of Congress may not use confidential information obtained in the performance of their government duties for personal gain.
Legislation also has been proposed in Congress which would limit stock trading by members of Congress and their staff. The Stop Trading on Congressional Knowledge (STOCK) bill has been the subject of several congressional hearings. The researchers said the bill provided “additional motivation for this study.”
They also said that by any of several different measurements the members of House earned “statistically positive abnormal returns.”
In both the Senate and the House, stocks purchased by the junior members with the least seniority significantly outperformed stocks purchased by the most senior members. As in the Senate, the study noted, stocks purchased by Democrats outperformed stocks purchased by Republicans. “But unlike the Senate,” the researchers said, “in the House of Representatives the difference between parties was not statistically significant.”
Researchers said the reason why junior members of Congress buy more stock is that the senior leaders may lack motive.
They said: “It is no secret that money is the life blood of politics. Whereas representatives with the longest seniority have no trouble raising funds for campaigns, junkets and whatever other causes they may deem desirable..., the financial position of a freshman Congressman is far more precarious. His or her position is by no means secure financially or otherwise. House members with the least seniority may have fewer opportunities to trade on privileged information but they may be the most highly motivated to do so when the opportunities arise.”
The researchers said they found “strong evidence that members of the House have some type of non-public information which they use for personal gain” and that “further research is warranted and...Congressional committees should take action on the issues.”
The researchers said the voting public can find out how their representatives have invested their money by examining their Financial Disclosure Reports, which must be submitted annually and are public information. Voting records are officially available in the Congressional record and also available on-line at various websites.
