Trade the Congressional Effect: How To Profit from Congress's Impact on the Stock Market

Congressmen as Traders and Real Estate Entrepreneurs: Making Money Outside Their Day Gig

There is one more aspect of what members of Congress do as issues entrepreneurs that is important to address. When you are an entrepreneur, you have to look at all opportunities to make money from your assets. For senators and representatives, their assets are largely the ability to influence the regulatory environment and to get early warnings on what it will be. Campaign donations are helpful for paying for the next election, but trading profits that go directly into your bank account are also one way to make money from your political assets.

That is why, as shown in a recent academic study,³ the average senator had a portfolio earning 10 percent above the market for five years in a row during the greatest bull market ever. Professor Alan Ziobrowski and his colleagues showed that from 1993 through 1998, a five-year period, the average senator made 85 basis points more than the market on their purchases, offset only slightly by losing 12 basis points more than the market on their sales. To put this in perspective, in 2000, Barber and Odean⁴ found that the average household underperformed the market by 12 basis points per month during the period from 1991 through 1996. In 2001, Jeng, Meck, and Zeckhauser⁵ found that from 1975 through 1996, the average corporate insider earned positive abnormal returns of 50 basis points per month. In effect, the average senator beat the market by 10 percent ...