We examine the profitability of stock trades executed by Securities and Exchange Commission (SEC) employees. Subject to the considerable constraints of the data (no portfolio information, occupational details, or individual identifiers and an inability to determine profitability of trades), we find that a hedge portfolio mimicking such trades earns a positive abnormal return of about 8.5 percent per year in US stocks, driven primarily by negative abnormal future returns on sell transactions. The SEC claims that this result stems in part from employees being forced to sell stocks in a firm when they are assigned to secret investigations. We question whether this policy is reasonable.
ASJC Scopus subject areas
- Economics and Econometrics