Yves here. This study ascertained that Congress members don’t generate insider trading big bucks until they assume leadership positions.
By Shang-Jin Wei, N.T. Wang Professor of Chinese Business and Economy, Professor of Finance and Economics at the Graduate School of Business and School of International and Public Affairs Columbia University and Yifan Zhou, Associate Professor of Finance Xi’an Jiaotong-Liverpool University. Originally published at VoxEU
The debate over whether US members of Congress should be allowed to trade individual stocks has become a mainstream policy concern. This column uses data on every US congressional stock trade from 1995 to 2021 to reveal that while rank-and-file members do not systematically beat the market, once some of them assume leadership positions their portfolios start to look very different and outperform those of regular members. The pattern raises uncomfortable questions about how political power, corporate access, and personal wealth interact.
The debate over whether US members of Congress should be allowed to trade individual stocks has moved from a niche ethics topic to a mainstream policy concern. Media investigations have documented pandemic-era sell-offs following closed-door COVID-19 briefings, widespread trading in industries overseen by members’ own committees, and dozens of apparent violations of the 2012 Stop Trading on Congressional Knowledge (STOCK) Act. Against this backdrop, proposals to ban stock trading by lawmakers are gaining traction in Washington. In the latest development, on 2 December 2025, Representative Anna Paulina Luna filed a discharge petition to force a House vote on banning individual stock trading by members of Congress (Hill 2025).
Economists have been trying to assess whether legislators’ portfolios actually earn abnormal returns, and if so, why. Early work by Ziobrowski et al. (2004, 2011) suggested that House and Senate members outperformed the market. Later studies reversed the verdict: Eggers and Hainmueller (2013) and Belmont et al. (2022) find that, on average, members would have been better off in index funds. Cherry et al. (2017) highlight that some senators earned significant sell-side gains around key legislative events, while Huang and Xuan (2023) show that abnormal performance largely disappeared after the STOCK Act. Related work on investors documents that access to policymakers can confer an informational advantage in capital markets, as evidenced by Fons-Rosen et al. (2020) on trading related to the 2008 Troubled Asset Relief Program.
Taken together, this literature paints a mixed picture: there are pockets of advantage, but not a simple story in which ‘Congress always beats the market’. Our contribution is to zoom in on a small but crucial group: congressional leaders. Rather than treating all lawmakers as alike, we ask whether gaining formal leadership power – Speaker, floor leader, whip, or caucus chair – changes how well a member’s personal investments perform.
Leadership and Trading Performance
Our study uses transaction-level data on every US congressional stock trade from 1995 to 2021 and links them to firm characteristics, regulatory actions, procurement contracts, and corporate news. We identify all individuals who ever held a leadership position and match each of them to a ‘regular’ member with similar tenure, party, chamber, age, and gender. We then follow both groups over time and compare their risk-adjusted buy-and-hold returns before and after leadership ascension.
Before entering leadership, future leaders and their matched peers underperform the market by similar amounts. After ascension, however, their trajectories diverge sharply: leaders’ trades outperform those of their matched peers by up to roughly 40–50 percentage points per year. The control group shows no comparable improvement. Calendar-time portfolio regressions using standard factor models confirm that leaders’ daily alphas rise markedly post-ascension, while non-leaders’ alphas remain flat.
Leadership positions are few – only 20 lawmakers in our sample trade both before and after ascension – so the results are not about ‘typical’ members of Congress. But leadership roles are exactly where agenda-setting power, regulatory influence, and corporate attention are concentrated. If one wants to know whether public power can be monetised in financial markets, this is where one should look.
We then ask: how do leaders manage to earn such outsized returns?
Channel 1: Political Information and Influence
The first mechanism is what we call the political information and influence channel. Leaders have privileged information about what legislation will be scheduled, which regulatory priorities are advancing, and which industries are likely to come under pressure. In majority leadership roles, they often help decide those outcomes. We implement several tests related to this channel.
- Partisan control. When leaders’ own party controls the chamber they sit in, their trades are significantly more profitable than when they are in the minority. Returns rise with control over the legislative agenda.
- Regulatory actions. We track regulatory events – investigations, enforcement actions, and congressional hearings – affecting firms whose stocks are traded. Leaders’ stock sales are followed by a marked increase in adverse regulatory events over the subsequent 3–12 months, while their purchases are not followed by a corresponding decline. This suggests that leaders sell ahead of bad political or regulatory news.
These tests show that leaders benefit from anticipatory trades around political developments. But are they merely informed observers, or do they also help shape outcomes in ways that enrich their portfolios?
- Legislative voting. Using bill-level data on all measures reaching the floor, we identify those with meaningful implications for the economy or businesses. For each leader trade, we look at relevant bills introduced in the following months and classify whether each bill is likely to benefit or harm the traded firm. We find that, following stock purchases, the leader’s party is significantly more likely to vote for bills deemed beneficial to the firm and against bills deemed harmful. The number of such ‘aligned’ bills rises substantially relative to matched non-leaders over medium-term windows.
- Procurement contracts. Drawing on the Federal Procurement Data System, we examine whether firms whose shares leaders buy subsequently receive more government contracts. They do: purchases are followed by significant increases in contract value and in the share of sole-source contracts. Given that the federal government awards millions of contracts each year but leaders only invest in a narrow subset of firms, it is hard to attribute this pattern solely to passive foresight. It is more consistent with selective influence over the allocation of public business. These procurement-related findings resonate with broader evidence that discretion in public procurement can foster favouritism and rent extraction (Bosio et al. 2020), and that close ties between politicians and firms can raise the cost of public contracts (Baránek and Titl 2024).
Taken together, these tests point to a political channel in which leaders both foresee and shape the policy and regulatory environment in ways that overlap with their personal portfolios.
Channel 2: Corporate Access
The second mechanism is a corporate access channel. Firms have strong incentives to cultivate influential lawmakers, particularly those who control legislative calendars or command committee agendas. Sharing sensitive information is risky. If firms must choose which politicians to trust, giving an informational edge to leaders is a natural, if troubling, strategy. We again bring two pieces of evidence to bear.
- Connections pay. After ascension, leaders earn significantly higher abnormal returns when trading in firms that either have contributed to their recent campaigns or are headquartered in their home states. The same patterns do not appear for otherwise similar non-leaders.
- Predicting corporate news. Leaders’ purchases are followed by more positive news; their sales are followed by more negative news. This predictive power is concentrated in executive-controlled events (e.g. dividend changes, guidance revisions, or earnings delays). Leaders do not anticipate outside shocks better than others (e.g. lawsuits). Moreover, the same individuals did not display this ability before becoming leaders. This pattern strongly suggests that corporate insiders appear to selectively share material non-public information with lawmakers whose political clout makes them valuable allies.
Did the STOCK Act Fix the Problem?
The 2012 STOCK Act was passed amid bipartisan promises to ‘stop trading on congressional knowledge’. Subsequent work has found that, on average, members’ abnormal returns declined after its passage, and politically connected hedge funds also lost some of their edge (Gao and Huang 2016, Huang and Xuan 2023). For the median legislator, the law may indeed have narrowed opportunities for exploiting inside information.
For leaders, the story is less reassuring. In our data, their trade frequency falls after 2012 – consistent with greater scrutiny – but their average trade size and risk-adjusted returns remain largely intact. Calendar-time portfolio regressions show that post-ascension alphas stay positive and economically meaningful even when portfolios are constructed using public disclosure dates rather than actual execution dates.
Policy Implications: Focusing on the Top of the Pyramid
Our findings concern a narrow but highly consequential slice of Congress: the small group of leaders at the top of the political hierarchy. We do not imply that every lawmaker is quietly beating the market – if anything, the broader literature points to underperformance for rank-and-file members. But they do show that when political power is highly concentrated, so too is the capacity to turn public office into a trading advantage.
This concentration makes enforcement difficult. Traditional insider-trading laws and transparency rules are poorly suited to a world in which decision-makers both receive and generate price-sensitive information, and where conflicted actions may be legal yet still corrosive to trust. So, what can be done?
One response, increasingly advocated by reformers, is a blanket ban on individual stock ownership for sitting members, with assets limited to broad index funds or genuinely blind trusts. Short of that, lawmakers could tighten disclosure windows, raise penalties, and create independent oversight for trades by those in leadership roles, alongside stricter rules on procurement conflicts and legislative recusal.
Ultimately, the question is not whether some members of Congress are ‘smart investors’, but whether a healthy democracy should allow its most powerful officials to hold concentrated positions in the companies whose fortunes they help shape. Our evidence suggests that, at least for congressional leaders, political power and private portfolios are uncomfortably intertwined.
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