Are auditors good stock pickers?

Treść źródłowa

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 stocksSource: Nilsson et al. (2025)On averag…