When pols play the market
October 26, 2005
Need a reason why politicians enjoy such an intimate relationship with corporate types? Look under Hobbies:
Last year, Alan Ziobrowski, a professor at Georgia State, headed the first-ever systematic study of politicians as investors. Ziobrowski and his colleagues looked at six thousand stock transactions made by senators between 1993 and 1998. Over that time, senators beat the market, on average, by twelve per cent annually. Since a mutual-fund manager who beats the market by two or three per cent a year is considered a genius, the politiciansÃ¢â‚¬â„¢ ability to foresee the future seems practically divine. They did an especially good job of picking up stocks at just the right time; their buys were typically flat before they bought them, but beat the market by thirty per cent, on average, in the year after. By those standards, [Bill] Frist actually looks like a bit of a piker.
Are senators really that smart? The authors of the study suggest a more likely explanation: at least some senators must have been trading "based on information that is unavailable to the public"Ã¢â‚¬â€in other words, they were engaged in some form of insider trading. ItÃ¢â‚¬â„¢s impossible to pin down exactly how it happened, but itÃ¢â‚¬â„¢s easy to imagine senators getting occasional stock tips from corporate supplicants, and their own work in Congress often deals with confidential matters that have a direct impact on particular companies. [LINK via Hit and Run]Ah, insider trading, the secret of every happy marriage on the Hill.