Abnormal Returns from the Common Stock Investments of the U.S. Senate

Alan J. Ziobrowski, Ping Cheng, James W. Boyd and Brigitte J. Ziobrowski

Journal of Financial and Quantitative Analysis, 2004, vol. 39, issue 4, 661-676

Abstract: The actions of the federal government can have a profound impact on financial markets. 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. We test for abnormal returns from the common stock investments of members of the U.S. Senate during the period 1993–1998. We document that a portfolio that mimics the purchases of U.S. Senators beats the market by 85 basis points per month, while a portfolio that mimics the sales of Senators lags the market by 12 basis points per month. The large difference in the returns of stocks bought and sold (nearly one percentage point per month) is economically large and reliably positive.

Date: 2004
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