U.S. Senators Beat Stock Market

- Alan Lavine and Gail Liberman

U.S. senators beat the stock market average by nearly 12 percentage points annually, according to a forthcoming study in the Journal of Financial and Quantitative Analysis.

Despite all the outcries over trading by corporate insiders--executives who run public corporations, our U.S. senators did significantly better.

Corporate insiders only beat the market by 5 percentage points annually, according to the study, by Alan J. Ziobrowski, associate professor at Georgia State University; James W. Boyd, associate professor at Kent State University; Brigitte J. Ziobrowski, professor at Augusta State University; and Ping Cheng, assistant professor at Florida Atlantic University.

The average household did the worst--trailing the market by 1.4 percent.The study, "Abnormal Returns from the Common Stock Investments of the United States Senate," examined transactions of 62 U.S. senators over six years--1993-1998. Information came from U.S. Senate financial disclosure reports.

Do our elected officials know something the rest of us don't?

The researchers discovered that before the senators bought specific stocks, the stocks' performance was normal. But the stock zoomed after senators made their purchases. After the senators sold their stocks, the stocks' performance returned to normal.

Other findings: A small group of senators were active traders in the stock market. Junior senators tended to outperform senior senators. Democrats outperformed Republicans by a slim margin.

"The actions of the federal government can have a profound impact on financial markets," said an abstract of the research report. "As prominent participants in the government decision- making process, U.S. senators are likely to have knowledge of forthcoming government actions before the information becomes public. This could provide them with an informational advantage over other investors."

Of course, there could have been other reasons senators' stocks outperformed the market. Random chance may have been a factor.

The senators could have been lucky. A six-year period of stock market performance is not enough time to determine if this is a significant trend. But it certainly would be interesting to know how they have fared since 1998!

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Alan Lavine and Gail Liberman are husband and wife columnist and authors of The Complete Idiot's Guide To Making Money With Mutual Funds, (Alpha Books). Al and Gail's new book is Rags to Retirement, (Alpha Books).