During the festive season, everything is more relaxed, and this week’s blog is no exception. The stock-picking abilities of animals are not the main research topic for most academics, yet the stock-picking skills, for example, of monkeys, were previously documented. To our best knowledge, the paper of Belmont et al. (2020) is the first that examines the stock-picking abilities of reindeer. Moreover, the performance of reindeer is compared to the US senators during 2020. Trading of US senators or congresspeople is particularly interesting since there are concerns about informed stock trading. Especially during the COVID pandemic, where the governments have a significant influence on the economies. The finding of the paper is that the performance of the senate is behind reindeer. However, the reindeer exhibit herding behaviour and momentum preferences. Perhaps, their abilities should be examined more deeply during a more extended period. 

Authors: William Belmont, Maxwell Grozovsky, Bruce Sacerdote, Ranjan Sehgal and Ian Van Hoek

Title: Senators vs Santa’s Reindeer: 2020 Stock Picking Roundup

Link: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3751711

Abstract:

Given the concerns over informed stock trading by U.S. senators and congresspeople at the beginning of the COVID pandemic, we examine these legislators’ short term stock trading results during 2020. We find little evidence for market timing or stock selection ability. Both Senators’ and House Members’ stock selections underperform the S&P at the one month horizon and underperform a size-industry adjusted benchmark at the 3 and 6 month time frames. Returns to legislators’ purchases contrast with returns to the top stock picks from U.S. brokerage houses and stocks chosen by Santa’s Reindeer (Santa’s Village Jefferson NH). As a group the Reindeer outperform the S&P by 4.89 percent in a single month, or over 70 percent on an annualized basis. However reindeer exhibit herding behavior and a preference for momentum stocks.

As always, the results can be presented through interesting charts:

Notable quotations from the academic research paper:

“At the beginning of the COVID pandemic in the U.S., several U.S. Senators and members of the House of Representatives came under scrutiny for their sales of stock. Legislators sold stock in the days following private briefings in January and March of 2020 and later bought technology
stocks and healthcare stocks that benefited from the emergency. In this paper we provide initial evidence on stock selection and market timing for 2020 for Senate and House members.

We find that stocks purchased by Senators perform either in line with the market or modestly lag the market depending on the benchmark chosen. Senators underperform the industrysize benchmark by 1.6 percent at the three month level and 3.1 percent at the six month level. Stocks sold by Senators also underperform both the S&P 500 and the industry-size benchmark by 2.1 to 2.5 percentage points at the six month time horizon. Purchases by House Members also underperform the S&P at the three and six month levels. Stock’s sold by House Members subsequently outperform the S&P but perform in line with the industry-size benchmark.

We compare the returns to stocks picked by the legislators to the top picks of analysts at U.S. brokerage houses and short term results for picks made by Santa’s Reindeer (at Santa’s Village). Santa’s reindeer were much better at picking stocks. Dasher, Dancer, Prancer, Vixen, Comet, Cupid, Donner, Blitzen, Rudolph and Boris (a trainee) selected 41 stocks, by making hoofprints on The Wall Street Journal’s stock pages, which were spread out on the floor of their barn in November. The process was monitored by Christian the Elf, who relayed the reindeer picks to the researchers. In the first month alone (Nov.-Dec.), the reindeer portfolio outperforms the market by 4.9 percent. Their selections reflect a preference towards pharmaceutical companies, life science, technology, and entertainment stocks. Reindeer likely benefit from a high-level view which enables them to sniff out emerging trends and leap ahead of the crowd.

The reindeer portfolio shows steady increases in its outperformance achieving statistical significance at about the 15 trading day mark. In contrast purchases by Senators underperform modestly by about 1 percentage point and the effect is never statistically significant.”

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