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

Part of: JFQA William F. Sharpe Best Paper Award Winner

Published online by Cambridge University Press:  06 April 2009

Alan J. Ziobrowski ,
Ping Cheng ,
James W. Boyd  and
Brigitte J. Ziobrowski
Alan J. Ziobrowski
Affiliation:
aziobrowski@gsu.edu, Georgia State University, Department of Real Estate, J. Mack Robinson College of Business, P.O. Box 4020, 33 Gilmer Street SE, Atlanta, GA 30302
Ping Cheng
Affiliation:
pcheng@fau.edu, Florida Atlantic University, Department of Industry Study, College of Business, 777 Glades Road, Boca Raton, FL 33431
James W. Boyd
Affiliation:
jboyd@bsa3.kent.edu, Kent State University, Department of Finance, College of Business Administration, Kent, OH 44242
Brigitte J. Ziobrowski
Affiliation:
bziobrow@aug.edu, Augusta State University, School of Business Administration, Augusta, GA 30904
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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.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 4 , December 2004 , pp. 661 - 676
Copyright
Copyright © School of Business Administration, University of Washington 2004

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