he United States Senate is often called "the most exclusive club in Washington," or exalted by its members as the "world's greatest deliberative body." But a new appellation may be in order: the world's best investment club.

According to a study conducted by four business professors, in any given year between 1993 and 1998 roughly one-third of all senators played the stock market, and those who did enjoyed an "abnormal" rate of return, meaning they out-performed the market. Senators consistently anticipated movements in stock prices: they often purchased stocks just before prices took off like a rocket, and revealed an uncanny ability to sell just when a stock was about to flatten out.

For some perspective, the authors of the study (university professors Alan Ziobrowski from Georgia State; Ping Cheng from Florida Atlantic; James Boyd from Kent State; and Brigitte Ziobrowski from Augusta State) compared the senators' performance with that of two groups. The first is the investing public: 66,465 randomly selected households in the United States that were studied in 2000. This group underperformed the market by approximately 1.4 percent annually from 1991 to 1996. The authors also compared the senators' performance with a 2001 study of corporate insiders during the period 1975 to 1996. This group beat the market by about 6 percent annually—lending credence to the old Wall Street adage that you rarely go wrong if you buy and sell when the insiders do.

Yet being a corporate insider, and presumably trading on the basis of privileged information, apparently pales next to being a senator. The Ziobrowski et al. study found that senators (including their spouses and dependents) outperformed the market by around 10 percent annually. "Nobody gets results like this in the financial world consistently and over the long term," notes Professor Tom Ferguson, who studies money in politics at the University of Massachusetts-Boston. Any manager of a mutual fund, in fact, who regularly beats the market by as little as two percent annually is considered an investment genius.

Since it cannot be a statistical fluke, the most plausible explanation for this achievement is that senators, by virtue of their powerful office, are made privy to such privileged information, and that some choose to capitalize on it. It's unlikely that stock tips are being exchanged during whispered conversations in Capitol Hill cloakrooms, or that senators are the first to realize the economic repercussions of complicated legislation. Rather, senators' acumen comes from being "embedded in social networks that provide them with access to valuable information," as the professors put it. Think of it as the Martha Stewart scenario writ large.

The study found no statistically significant difference between the abnormal returns earned by Democrats versus Republicans over the six-year period. Seniority, however, appeared to be a significant factor. Surprisingly, those with the least seniority (e.g., in their first six-year term) achieved higher abnormal returns than senators who had served at least two terms. This suggests that lucrative investments of other kinds may flow more easily to established senators who wield more power, say, committee chairmen.

Mark Twain's observation, first offered more than 100 years ago, seems pertinent. If your congressman comes back to your state to run for re-election and is not coming home a millionaire, noted Twain, "he is a fool and should be turned out of office."

LIBERAL RULES—To be sure, senators who trade are not doing anything illegal, or even unethical, according to the Senate's internal standards. Stock trading on the basis of privileged information is not even addressed in the Senate's Ethics Manual. Senators are prohibited from directly "cashing in" on legislation they work on; yet overall the rules governing their financial conduct are quite liberal. Senators are not required to "strip themselves of worldly goods" upon taking office, nor are they disqualified from voting on issues that generally affect their personal fortunes.

Interpreting the ethics code is largely up to the members. At one end of the spectrum lies Richard Lugar (R-IN), a senator for 28 years, who decided when he entered politics in 1967 that holding individual stocks was incompatible with public service. Lugar invests only in diversified mutual funds, and each year releases a balance sheet of his assets and liabilities that goes well beyond what is legally required. At the other end is Ted Stevens, the senior Republican in the Senate who is also known as Alaska's "senator for life," having represented that state since 1969. Stevens invests in dozens of individual stocks, including telecommunications and technology companies that fall directly under the jurisdiction of the Commerce Committee, which he chairs.