For the broader analysis of the 7,200 trades, the researchers modeled a portfolio based on the SEC employees’ investment decisions and found their stock trades beat a market index by as much as 16 percent from August 2009 to December 2011. They measured the one-year return for each transaction.
The profits generally didn’t come from picking stocks, with the researchers finding that SEC employees “appear unable to capture gains in their buy portfolios.” Instead, almost all of the excess return stemmed from selling shares that later declined in value relative to the broader market, they wrote.
That finding indicates employees may have sold shares in companies they knew were under a non-public SEC investigation, the authors write.
“They do manage to get out before bad news hits the market,” Rajgopal said.