05 August 2010

Is There Insider Trading In Congress?

An abstract of whether a law to prevent insider trading by members of Congress can be found here. The empirical evidence cited by the article and found in the abstract is as follows:

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.

I obliquely cited this study in a comment at Square State about campaign funds invested in the stock market, which is much less ethically troubling than insider trading for personal gain as indicated by this study.

Of course, a key concern from a policy perspective about trying to prevent insider trading by members of Congress by criminalizing it is that it furthers the criminalization of politics, which distracts participants in the political process from focusing on the merits of the issues before them.

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