The Incredible Stockpicking ability of SEC employees

[saltybit]

WaPo article:

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/02/27/the-incredible-stock-picking-ability-of-sec-employees/

 

The research pub:

http://www.darden.virginia.edu/web/uploadedFiles/RajgopalSECtradingpaper.PDF

 

In the report titled "The Stock Picking Skills of SEC Employees," researchers found that SEC employees' stock purchases look like your average person's. But when these employees sell their stocks, they appear to systematically beat the market by making sales within weeks of costly enforcement actions by the agency.

 

The information was obtained from the SEC under a Freedom of Information Act request, but it was limited. The researchers did not have access to the portfolios of the SEC employees.

And none of the trades were identified by employee, so the researchers could not tell how much in profits certain employees were earning, or whether employees with certain kinds of jobs or levels of power were able to make more money.

Instead, they built hedge fund portfolios where they went long on stocks that SEC employees buy and short on stocks they sell.

[ASTA]

Thanks saltybit,

I think that this kind of research open up transparency which is good for the economy. Good job by the doctoral student :D 

[ni-co]

Update: The SEC says it has an explanation. "Each of the transactions was individually reviewed and approved in advance by the Ethics office," said John Nester, spokesperson for the SEC. "Most of the sales were required by SEC policy. Staff had no choice. They were required to sell."

Nester explained that before staff can work on an issue that involves a company, they have to sell any holdings of stock in that firm. As a result, he said, there shouldn't be any surprise that a sale would precede the announcement of an enforcement action.

 

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/02/27/the-incredible-stock-picking-ability-of-sec-employees/

 

This makes me wonder why SEC employees are allowed to buy and keep individual stocks in their portfolios at all.

[matts]

The article has been updated.

 

Update: The SEC says it has an explanation. "Each of the transactions was individually reviewed and approved in advance by the Ethics office," said John Nester, spokesperson for the SEC. "Most of the sales were required by SEC policy. Staff had no choice. They were required to sell."

Nester explained that before staff can work on an issue that involves a company, they have to sell any holdings of stock in that firm. As a result, he said, there shouldn't be any surprise that a sale would precede the announcement of an enforcement action.

 

This makes sense to me, at least to a certain extent.