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September 28, 2011

SEC: Congressmen and Senators Who Trade Based on Information They've Secured Due To Their Powers Are Not Guilty of Insider Trading

Strange-- but the ruling, I'm guessing, demonstrates proper restraint.

What I mean is that it is not the job -- or should not be the job -- of a regulatory agency to create new law, just because it thinks the law is incomplete.

That's the job of Congress.

And if Congress has not extended the definition of "insider trading" to include themselves -- they who actively plan to favor or disfavor companies and industries via legislation, they who receive top-secret briefings on the economy and foreign policy, and also receive highly confidential information from companies via the power of subpoena (as well as payments-in-kind tip-offs) -- that's Congress' prerogative.

It is, however, a shameful exercise of that prerogative, which should be remedied, by Congress, immediately.

A pair of recent academic studies found that House members beat the market in their personal stock trading by about 6 percent, and Senators beat the market by about 10 percent.

In the 2011 study “Abnormal Returns From the Common Stock Investments of Members of the U.S. House of Representatives,” four university professors found that a portfolio that mimics the purchases of House Members beats the market by 55 basis points per month, or approximately 6 percent annually. That study looked at 16,000 common stock transactions made by approximately 300 House delegates from 1985 to 2001.

“Overall we find that the common stocks purchased by Members of the U.S. House of Representatives earn statistically significant positive abnormal returns. Our results indicate that Representatives, like Senators, also trade with a substantial information advantage,” wrote the study’s authors, Alan J. Ziobrowski of Georgia State University, James W. Boyd, of Lindenwood University, Ping Cheng of Florida Atlantic University and Brigitte J. Ziobrowski of Augusta State University.

Partisan hatchet-job? Maybe not so much.

The group also noted that stocks purchased by Democrats outperform stocks purchased by Republicans.

Well isn't that comfy-cozy.

Thanks to momma.


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posted by Ace at 11:56 AM

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