Nate Silver's popular book on the art and science of prediction, The Signal and the Noise has a chapter on financial markets called If you can't beat em.... The chapter spends some time discussing the statistics of market movements and the implications of the Efficient Market Hypothesis (EMH) on investment performance and its usefulness in predicting future investment performance.
Silver is not pointing out anything new when he argues that the short runs of past success investment managers use to persuade us they have skill are actually useless in predicting their future performance. It is almost a definition of the EMH that analysis of past trends and public information cannot be used to beat the market (more subtle versions admit some possibility to beat the market but not by large enough amounts to profit after transaction costs). See this related question on investment skill: Do investment managers pick stock portfolios better, on average, than monkeys throwing darts?
But, of course, some people have inside information not known to the public, though most markets prohibit profiting from such insider knowledge. In discussing the possibility of insider trading Silver makes the following assertion (p342 in my hardback edition):
One disturbing example is that members of Congress, who often gain access to inside information about a company as they are lobbied and who also have some ability to influence the fate of companies through legislation, return a profit on their investments that beats market averages by 5 to 10 percent per year, a remarkable rate that would make even Bernie Madoff blush.
So, is Silver right? Is there strong evidence that members of Congress make excess trading profits that look like exploitation of insider knowledge?
Note: the key issue is not whether some profits are made some of the time. The statistics of markets can generate large profits over several years for participants that are merely statistical runs of luck and not evidence of either skill or insider knowledge. Evidence for skill or inside knowledge requires strong statistical evidence that profits are higher than the market return over an extended period of time.