Are auditors good stock pickers?
We all know the studies that examine the returns of politicians in the US. For some reason, US politicians are insiders on key regulatory and legal changes but somehow not exempt from trading individual stocks. But there is another group of professionals who have significant insider information and face only limited restrictions on their stock trading: auditors. And since in Sweden, every personal portfolio is publicly available via tax records, one can analyse the investment performance of Swedish auditors.
Henrick Nilsson from the Stockholm School of Economics and his collaborators looked at the investment portfolios of auditors and their investments in Swedish stocks. Of course, an auditor cannot invest in the stocks of companies that she is actively auditing. Still, outside of blackout windows or restrictions due to corporate client relationships, they are free to invest wherever they want.
The research was conducted on the investment portfolios of auditors employed at the Big 4 audit firms between 1999 and 2015, and it found first and foremost that auditors – just like most people – like to invest in individual stocks. Half the auditors in their sample owned single stocks in Swedish companies despite the many restrictions on ownership.
And when they do invest in stocks, they are pretty good at it. The chart below shows the difference in actual investment returns for Swedish auditors compared to the Swedish stock market in the 12 months after they make an investment in a stock.
Average outperformance in the 12 months after buying stocks
Source: Nilsson et al. (2025)
On average, auditors outperform the Swedish stock market by a large 3.2%, with partners (who have more experience) outperforming by 4.0%. Crucially, industry experts tend to invest more in companies in the industries they cover and are able to generate higher returns there than in industries where they are not experts.
The compliance regime here is built to stop an auditor trading the company on her desk, and on that narrow task it works. What it cannot do is stop her trading on what auditing that company taught her about its competitors, and the data politely confirms she does precisely that. The outperformance lands in the industries she covers but does not directly audit.
That is the quietly damning bit. A rule can name an asset and bar you from it. It cannot name the knowledge you accumulated on the way to being barred, because knowledge carries no ticker. So the edge never has to breach the wall. It walks around it, into the sector next door.
Read that way, 3.2% is less a stock-picking score than a measure of how porous the walls remain even when everyone observes them to the letter.
And the only reason any of this is visible is that Sweden files every portfolio as a public record. The same arrangement runs everywhere else. It just keeps the lights off.
One in five lawmakers trade in assets in industries impacted by the committees they’re on.
Along with AI probably the only political item with bipartisan support. Today no democrat supports the republican ‘stop insider trading act’ because it has loopholes.
In 2023 democrats provoked the ire of voters across the isle for not supporting their OWN proposal The Combatting Financial Conflicts of Interests in Government Act (requested by the most successful inside trader Nancy Pelosi who had earlier said she wouldn’t support a ban on stock trading in Congress - until covid saw politicians make so much money from trading that her pov became untenable).
The original bill had bipartisan support.
But democrats complicated the bill and then slowwalked their act until they knew there would not be enough votes because lawmakers would not have enough time to review the act (and close loopholes for instance) before introducing it just before the midterms. And then they killed it.
Opponents weren’t convinced from the start since the act had a massive built-in loophole: putting stocks in a blind trust which would not have to comply with the requirements of a legal blind trust. Perhaps we can call this a ‘double blind trust’?