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Surprise!: Congress' personal investments somehow manage to outperform the market

May 24, 2011 - by Donny Shaw

You know what’s sketchy? According to a new report, members of Congress who invest in the stock market consistently end up making abnormally high returns. Dan Froomkin reports:

Four university researchers examined 16,000 common stock transactions made by approximately 300 House representatives from 1985 to 2001, and found what they call “significant positive abnormal returns,” with portfolios based on congressional trades beating the market by about 6 percent annually.

What’s their secret? The report speculates, but does not conclude, it could have something to do with the ability members of Congress have to trade on non-public information or to vote their own pocketbooks — or both.

A study of senators by the same team of researchers five years ago found members of the higher chamber even better at beating the market — outperforming it by about 10 percent, an amount the academics said was “both economically large and statistically significant.”

What’s more likely here? Are members of Congress particularly brilliant? Or are they corrupt?

Congress has already made insider trading illegal for corporate leaders and anyone they may tip off. Perhaps it’s time for Congress to turn that law on themselves and pass the “Stop Trading on Congressional Knowledge Act,” which would prohibit members of Congress from trading stocks, bonds, commodities futures, swaps, etc. while “in possession of material nonpublic information.”

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