Congress Sells Secrets?

Compared to ordinary investors, US Congress members get huge returns on their investments, presumably via their inside line on upcoming government actions. In particular, Congress gets inside info on upcoming US-backed coups, and someone has been trading lots on that info. Gee I wonder who …

Researchers examined 16,000 common stock transactions made by … 300 House representatives from 1985 to 2001, and found … portfolios based on congressional trades beating the market by about 6 percent annually. … A study of senators … five years ago found members of the higher chamber even better at beating the market — outperforming it by about 10 percent. … Members of Congress … [can legally] trade on non-public information. (more)

We estimate the impact of coups and top-secret coup authorizations on asset prices of partially nationalized multinational companies that stood to benefit from US-backed coups. Stock returns of highly exposed firms reacted to coup authorizations classified as top-secret. The average cumulative abnormal return to a coup authorization was 9% over 4 days for a fully nationalized company, rising to more than 13% over sixteen days. Pre-coup authorizations accounted for a larger share of stock price increases than the actual coup events themselves. (more)

We let Congress profit from insider trading that would be illegal for corporate executives. Even so, I doubt it is legal to trade stocks using top-secret info on planned coups, thereby leaking that info to the world. But I’ll bet Congress has been doing a big share of that leaking – who else has access to that info and needn’t fear prosecution for such misdeeds?

Good thing we are cracking down on insider trading by CEOs …