Stock Trades of Securities and Exchange Commission (SEC) Employees

Abstract

We examine the profitability of stock trades executed by SEC employees. Subject to the considerable constraints of the data (no portfolio information, occupational details, or individual identifiers and inability to determine actual profitability of trades), we find that a hedge portfolio mimicking such trades earns a positive abnormal return of about 8.5% per year in U.S. 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.

Keywords: insider trading, government employee stock trades, securities law

JEL Classification: K22, K42, G14, G28