Monday, March 01, 2004

The wealthy buy access to senators with stock tips?

Title: Senators' stocks often outperform market
Source: Financial Times
Date: February 24, 2004

From the article:
    US senators' personal stock portfolios outperformed the market by an average of 12 per cent a year in the five years to 1998, according to a new study.

    "The results clearly support the notion that members of the Senate trade with a substantial informational advantage over ordinary investors," says the author of the report, Professor Alan Ziobrowski of the Robinson College of Business at Georgia State University.

    He admits to being "very surprised" by his findings, which were based on 6,000 financial disclosure filings and are due to be published in the Journal of Financial and Quantitative Analysis.

    "The results suggest that senators knew when to buy their common stocks and when to sell."
The reason that senators know when to buy and sell, presumably, is because their wealthy supporters give them insider trading information. If true, this would be yet another way for the wealthy to buy access to government officials.

Alternatively, it could be that senators know what legislation is coming down the pipe, intimately understand the effects the legislation will have on different industries and companies, and trade on this insider information.

See also this post and this one.


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