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  • Journal of Financial and Quantitative Analysis, Volume 39, Issue 4
  • December 2004, pp. 661-676

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

  • Alan J. Ziobrowski (a1), Ping Cheng (a2), James W. Boyd (a3) and Brigitte J. Ziobrowski (a4)
  • DOI: http://dx.doi.org/10.1017/S0022109000003161
  • Published online: 01 April 2009
Abstract
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.

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B. M. Barber , and T. Odean . “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors.” Journal of Finance, 55 (2000), 773806.

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E. F. Fama Market Efficiency, Long-Term Returns and Behavioral Finance.” Journal of Financial Economics, 49 (1998), 283306.

E. F. Fama , and K. R. French . “Common Risk Factors in Returns on Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 356.

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G. Mandelker Risk and Return: The Case of Merging Firms.” Journal of Financial Economics, 1 (1974), 303335.

M. L. Mitchell , and E. Stafford . “Managerial Decisions and Long-Term Stock Price Performance.” Journal of Business, 73 (2000), 287320.

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