It's hard to pick stocks that will go up, so most people can't do it consistently. It's about equally hard -- probably a bit harder -- to pick stocks that will go down, so most people can't do that consistently either. But if somehow you knew in advance what banks were going to be investigated for bank-y malfeasance, or which biotech companies were cooking their books, then you could sell their stocks and avoid losses, with consistent repeatable outperformance. Who might know that sort of thing in advance?
That's from this recent paper by Shivaram Rajgopal and Roger M. White, with the coolly sarcastic title "Stock Picking Skills of SEC Employees." The paper, and the related Bloomberg News article, are entertaining stuff. Statistical anomalies are, perhaps, the lowest form of evidence, but they are evidence, and this is some evidence that the Securities and Exchange Commission's employees are making use of their inside information to trade stocks.