Abnormal returns from the common stock investments of members of the us house of representatives

The actions of the federal govemment can have a profound impact on financial markets. As prominent participant.' ̂ in the govemment decision making pr(x:ess. U.S. Senators are likely to have knowledge of forthcoming government actions before the inlormaiion be-comes public. This could provide them with an informational advantage over oiher in-vestors. We test for abnonnal retums from the common stock investments of members of the U.S. Senate during the period 1W3-I998. We document that a portfolio that mimics the purchases of U,S, Senators beats ihe market by H5 basis points per month, while a port-folio 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. I