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Want To Outperform The Market? Just Trade Alongside The SEC

Tyler Durden's picture


Goodbye SAC Capital. Hello SEC Capital.

A new study released by Rajgopal of Emory and White of Georgia State confirms what most have long known: SEC employees are immaculate stock pickers and "that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular." But those wily regulators are tricky indeed: instead of frontrunning good news and outperforming on the upside, the "abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices." In other words, in a market in which hedge funds have given up on shorting stock, the best outperformer is none other than the very entity that is supposed to regulate and root out illicit market activity!

From the study's summary:

We use a new data set obtained via a Freedom of Information Act request to investigate the trading strategies of the employees of the Securities and Exchange Commission (SEC). We find that a hedge portfolio that goes long on SEC employees’ buys and short on SEC employees’ sells earns positive and economically significant abnormal returns of (i) about 4% per year for all securities in general; and (ii) about 8.5% in U.S. common stocks in particular. The abnormal returns stem not from the buys but from the sale of stock ahead of a decline in stock prices. We find that at least some of these SEC employee trading profits are information based, as they tend to divest (i) in the run-up to SEC enforcement actions; and (ii) in the interim period between a corporate insider’s paper-based filing of the sale of restricted stock with the SEC and the appearance of the electronic record of such sale online on EDGAR. These results raise questions about potential rent seeking activities of the regulator’s employees.

What questions? By now it is abundantly clear that enforcing a fair and efficient market is the last thing on the minds of SEC staffers. It is now also quite clear that in such times when said staffers are not browsing porn on the taxpayers' dime, they are trading stocks on illegal, market-moving information.

And since not even the most sophisticated hedge funds can generate returns through shorting, maybe it is time for the government to do something right, and spin off SEC Capital as a standalone hedge fund.

The added benefit: the 2 and 20 fees said fund charges can be used to pay down a tiny fraction of US debt, and maybe hire real private sector regulators who will do the public agency's job for a change.

And as John Lohman points out, when you already have all the inside info you need, there is no actually requirement to log into your Bloomberg.

Full study link here


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Thu, 02/27/2014 - 15:17 | 4485813 madbraz
madbraz's picture

Isn't that the definition of insider trading? 

Thu, 02/27/2014 - 15:19 | 4485823 NotApplicable
NotApplicable's picture

And that's just the trades they know about. My guess is there's plenty more they didn't see.

Thu, 02/27/2014 - 15:26 | 4485858 Pladizow
Pladizow's picture

Porn ETF's for all!

Thu, 02/27/2014 - 15:29 | 4485870 Occident Mortal
Occident Mortal's picture

How on earth can they be allowed to own the securities they are supposed to be regulating?

It's insanely stupid.

Thu, 02/27/2014 - 15:31 | 4485884 piceridu
piceridu's picture

Talk to Congress...oh wait...

Thu, 02/27/2014 - 15:37 | 4485907 krispkritter
krispkritter's picture

Yeah, for more tips.  And here I thought people wanted Gov't jobs for the pensions, not enough apparently, they need more.

Thu, 02/27/2014 - 15:55 | 4485963 Divided States ...
Divided States of America's picture

I know Emily Goodman and Wendy Kong....they both work night shift in the brothel close to the SEC office in DC.

Thu, 02/27/2014 - 16:08 | 4486008 NoDebt
NoDebt's picture

I just want to win the trash collection contract for the SEC offices.  I'll do fine on just that.

Thu, 02/27/2014 - 18:24 | 4486537 Keyser
Keyser's picture

The fact that SEC employees are allowed to persoanlly trade securities speaks for itself. Rather loudly at that. 

Thu, 02/27/2014 - 16:04 | 4486000 nickels
nickels's picture

This is the sort of thing that could make even Eric Holder sick. -- oh wait..

Thu, 02/27/2014 - 18:27 | 4486549 Keyser
Keyser's picture

It was just an attack of morals. Not to worry, it's passed now and he's off to the arctic circle where he will bash baby seals to death with a club. 

Thu, 02/27/2014 - 16:13 | 4486025 Cacete de Ouro
Cacete de Ouro's picture

New SEC motto: We short the stocks while watching shorties suck cocks

Thu, 02/27/2014 - 15:35 | 4485901 seek
seek's picture

I'd imagine the SEC spouse hedge fund would outperform this by a wide margin.

Thu, 02/27/2014 - 15:18 | 4485817 lolmao500
lolmao500's picture

The SEC? You mean those perverts watching porn at work 24/7? So... trade alongside the SEC... trade porn companies shares?

Anyways... a sign of the times :

Rome days away from bankruptcy Eternal city warns it will go bust for the first time since it was destroyed by Nero


Thu, 02/27/2014 - 15:39 | 4485916 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Them porn subscriptions don't pay for themselves.

Think of it as a business expense to keep the SEC disfunctioning smoothly.

Thu, 02/27/2014 - 15:18 | 4485820 OwnSilverPlayMusic
OwnSilverPlayMusic's picture

This ain't the fox guarding the hen house.  This is the fox in charge of fucking KFC

Thu, 02/27/2014 - 15:25 | 4485854 Joe Davola
Joe Davola's picture

Finger lickin' good!

Thu, 02/27/2014 - 15:20 | 4485830 bagehot99
bagehot99's picture


Where graft for the insiders is not even remarkable.

Thu, 02/27/2014 - 15:20 | 4485831 Market Rage
Market Rage's picture

There's something very wrong if they are allowed to trade.

Thu, 02/27/2014 - 15:27 | 4485863 Occident Mortal
Occident Mortal's picture

Exactly, how can you work at the SEC and own a portfolio of US equities?

Thu, 02/27/2014 - 15:34 | 4485895 NotApplicable
NotApplicable's picture

Ummm... because government is merely the most organized form of crime?

The only thing surprising about this is that it surprises anyone at all.

Thu, 02/27/2014 - 15:40 | 4485918 onewayticket2
onewayticket2's picture

"In a related story, two researchers were found floating in the Potamac today....story at 11"



Thu, 02/27/2014 - 15:36 | 4485906 Mercury
Mercury's picture

Probably because they officially have no fiduciary duty, the violation of which often determines whether or not illegal, "insider trading" has taken place.

Thu, 02/27/2014 - 15:22 | 4485839 Mesquite
Mesquite's picture

I like that pix..!

Thu, 02/27/2014 - 15:35 | 4485900 krispkritter
krispkritter's picture

That was back in my trading days...

Thu, 02/27/2014 - 15:23 | 4485845 Hindenburg...Oh Man
Hindenburg...Oh Man's picture

How in the world can these people be allowed to trade anything but the most benign and generally-focused securities?

Thu, 02/27/2014 - 15:25 | 4485853 ejamest
ejamest's picture

What's next, Congress trading on inside info....oh, wait.

Thu, 02/27/2014 - 15:58 | 4485976 DontGive
DontGive's picture

Wait a minute.. How dare you point out the hypocracy?!?

Thu, 02/27/2014 - 16:09 | 4486014 ebworthen
ebworthen's picture

Hippotocracy, but real Hippos have a number of self-redeeming qualities and work for their food.

Thu, 02/27/2014 - 15:26 | 4485857 Josh Randall
Josh Randall's picture

What returns do the employees at S&P generate?

Thu, 02/27/2014 - 15:27 | 4485862 Colonel Klink
Colonel Klink's picture

._. my surprise face at learning this.

Thu, 02/27/2014 - 15:28 | 4485867 Kaiser Sousa
Kaiser Sousa's picture

buy stocks...

you, as in YOU cant loose in this free and fair marketplace...


there only 2 forms of real money free of counterparty risk...

hint - 1 was found yesterday by some old folks buried in coffee cans some hundred years ago...


Thu, 02/27/2014 - 15:30 | 4485878 Hammerabi
Hammerabi's picture

MJ Pennystocks: Outperforming the Market Since 2013

Thu, 02/27/2014 - 15:41 | 4485925 wcvarones
wcvarones's picture

Illegal?  I thought insider trading applied only to nonpublic information from companies, not from regulators.

Thu, 02/27/2014 - 15:52 | 4485955 NoDebt
NoDebt's picture

Correct.  That's why they can do this legally.  These guys are still pikers compared to members of Congress.  Or Presidents and their spouses (rembember Hillary's huge 100% winning trades in a market she didn't even understand back in the 90s?)

Thu, 02/27/2014 - 15:42 | 4485927 Chippewa Partners
Chippewa Partners's picture

@dangallaghersec   should enjoy the study.........  the only SEC commissioner with a twitter handle.............


Thu, 02/27/2014 - 15:45 | 4485935 lolmao500
lolmao500's picture

: I called ’s FM Lavrov to discuss , asked that work with US & our allies to rebuild a healthy .

Luuuuuuuuuulz.... Kerry is either the most foolish foreign minister ever... or he's just saying that kind of crap for propaganda on how Murica is for peace...

Thu, 02/27/2014 - 16:34 | 4486102 NOTaREALmerican
NOTaREALmerican's picture

Re:  or he's just saying that kind of crap for propaganda on how Murica is for peace...

All societies are run by sociopaths.   Diplomacy is lawyers dealing with sociopaths.  Usually, lawyers are the sociopaths and their clients are just normal assholes.  But when dealing with nations it's all sociopaths.

Thu, 02/27/2014 - 15:48 | 4485944 unrulian
unrulian's picture

Kerry is either the most foolish foreign minister ever...


Thu, 02/27/2014 - 15:59 | 4485967 ebworthen
ebworthen's picture


Employees of an equity market enforcment agency can trade equities?

I would be shocked and outraged if I did not know that the black flag had been hoisted against citizens by Wall Street and Washignton a long time ago.

Anyone would be hard pressed to identify the King's men from the true Pirates.

Hide your Wives and Daughters, and bury your Gold!

Thu, 02/27/2014 - 15:59 | 4485980 Downtoolong
Downtoolong's picture

Imagine the results if they had access to trading activity of SEC employee inlaws.

Thu, 02/27/2014 - 15:59 | 4485981 Brokenarrow
Brokenarrow's picture

do you think they see these posts?  how can they not?

Thu, 02/27/2014 - 17:19 | 4486285 headhunt
headhunt's picture

No - it's not a porn site

Fri, 02/28/2014 - 04:35 | 4487953 o2sd
o2sd's picture

Speak for yourself.

Thu, 02/27/2014 - 16:09 | 4485994 Chuck Knoblauch
Chuck Knoblauch's picture

Quis custodiet ipsos custodes?


Who watches the watchmen?

Thu, 02/27/2014 - 16:04 | 4485998 Anonymouse
Anonymouse's picture

It's great to see the SEC is getting the best and the brightest.

Nothing to see here, people.  Move along.

Thu, 02/27/2014 - 16:09 | 4486016 NotApplicable
NotApplicable's picture

That's why they're richer than you.

Thu, 02/27/2014 - 16:11 | 4486021 The_Ungrateful_Yid
The_Ungrateful_Yid's picture

Follow Old Yeller or get FUCKED.

Thu, 02/27/2014 - 16:23 | 4486057 Chuck Knoblauch
Chuck Knoblauch's picture

The IRS could audit SEC employees and argue that these gains are additional compensation subject to payroll taxes? 

Thu, 02/27/2014 - 16:29 | 4486084 NOTaREALmerican
NOTaREALmerican's picture

We need to have self regulated markets where the basically honest poeople who buy and sell stocks in an open and honest market aren't bothered by the heavy hand of government interference.    It worked for the banks,  it'll work for the markets too.

Thu, 02/27/2014 - 16:41 | 4486089 Chuck Knoblauch
Chuck Knoblauch's picture

I can only imagine how much NSA employees are making listening to SEC conversations?


Thanks for the link.

Thu, 02/27/2014 - 18:27 | 4486557 Restcase
Restcase's picture

They're more focused on best porn website tips.

Thu, 02/27/2014 - 17:00 | 4486209 Dr Heisenberg
Dr Heisenberg's picture

How does one obtain said list?

Thu, 02/27/2014 - 17:08 | 4486242 bondman1
bondman1's picture

Hey, at least compliance is logged in!

Thu, 02/27/2014 - 17:17 | 4486274 replaceme
replaceme's picture

I guess it makes sense - if you didn't let them trade the stocks they were regulating, didn't let them frontrun the market, they'd be tempted to break the law. </crazytalk>  For a second I could hear Obama saying that in a press conference, and people were clapping for him. 

Thu, 02/27/2014 - 17:21 | 4486296 williambanzai7
williambanzai7's picture

Aren't they exempt along with Congress? If not Eric Hold-Off will take care of it.

Thu, 02/27/2014 - 18:22 | 4486529 Chuck Knoblauch
Chuck Knoblauch's picture

The STOCK Act should apply to SEC employees.

Thu, 02/27/2014 - 17:52 | 4486414 Dimons jock
Dimons jock's picture

I gotta know Zerubbabel Johnson looks like ...

"... if you could read my mind, love ..."

Thu, 02/27/2014 - 18:14 | 4486492 hangemhigh77
hangemhigh77's picture

What a surprise.

Thu, 02/27/2014 - 18:25 | 4486546 Chuck Knoblauch
Chuck Knoblauch's picture

The STOCK Act should apply to all federal government employees.

Thu, 02/27/2014 - 19:37 | 4486841 joego1
joego1's picture

I've been thinking about moving to Mexico but often thought it was too corrupt. Now I'm thinking whats the difference.

Sun, 03/02/2014 - 06:43 | 4496455 damicol
damicol's picture

Look some on here are not quite understanding the program.

 Of course shorting things  is the only possible way. As the SEC can only make things worse for a company and hardly improve it. So , start from scratch, if you buy a stock and then visit what could the SEC possibly do to drive it higher, Nothing..

But sell short and  just think how much damage you can wreak if you are tthe SEC.

 Now jusm to the obvious conclusion..

 How to front run the SEC,

 Simples folks.

Get your home made stickos of gelllo and a fuse and get down to nearest corporate HQ and just after you shorted it like hell and grandma and they kids are crying as they get towed away,  whooommph. kabooom

Watch that stock drop.

Not even the SEC could figure which is going to go bang next.

 Remenvber, if its good enough for them, its good enough for you too


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