Back in 2004, an academic paper published by four professors tested for abnormal returns from the common stock investments of members of the U.S. Senate during the period 1993–1998. The paper by professors Alan J. Ziobrowski, Ping Cheng, James W. Boyd, and Brigitte J. Ziobrowski concluded that a portfolio that mimics the purchases of U.S. Senators beats the market by a stunning 85 basis points per month (approximately 10% annually). This paper sparked a significant amount of debate over whether U.S. Senators were trading based on their inside knowledge of forthcoming government actions before the information became public, and also about the extent to which members of Congress are subject to liability for insider trading (they aren't). Prof. Alan Ziobrowski was quoted at the time as saying that "there is cheating going on, at a 99 percent level of confidence."

This week, those same professors released a related paper applying the same methodology to test for abnormal returns from the common stock purchases of members of the U.S. House of Representatives during the period 1985–2001. Once again, the research shows that stocks purchased by House members "earn significant positive abnormal returns." The new paper finds that a portfolio that mimics the purchases of House members beats the market by 55 basis points per month (approximately 6% annually).

The latest paper further supports what I and many others have argued for some time. A loophole currently allows members of Congress to engage in a form of legal insider trading, and the statistics suggest that members of Congress are, in fact, taking advantage of this. The only way to close this loophole is for the very people that benefit from the loophole to close it themselves by requiring faster disclosure of their trades (i.e., real-time disclosure) or passing legislation such as the STOCK Act.

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