Yves here. Recent research has demonstrated that members of Congress do not see significant gains from insider trading until they attain leadership roles.
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 ongoing discussion regarding whether U.S. Congress members should be allowed to trade individual stocks has transitioned from a specialized ethical issue to a significant policy concern. Our analysis of stock trading data from 1995 to 2021 reveals that while ordinary members largely fail to outperform the market, those who ascend to leadership roles show markedly different investment outcomes with considerably better performance. This trend raises challenging questions about the intersection of political influence, corporate access, and personal financial gain.
The conversation about the appropriateness of individual stock trading by U.S. legislators has gained momentum, fueled by media investigations revealing pandemic-related sell-offs following confidential COVID-19 briefings, rampant trading within industries regulated by members’ committees, and numerous apparent breaches of the 2012 Stop Trading on Congressional Knowledge (STOCK) Act. Operating in this climate, proposals to prohibit stock trading by lawmakers are increasingly gaining support in Washington. A notable development occurred on December 2, 2025, when Representative Anna Paulina Luna initiated a discharge petition to compel a House vote on banning individual stock trading among Congress members (Hill 2025).
Economists have been exploring whether the investment portfolios of legislators yield abnormal returns and, if so, the reasons behind it. Initial studies conducted by Ziobrowski et al. (2004, 2011) indicated that members of the House and Senate outperformed the market. However, subsequent research by Eggers and Hainmueller (2013) and Belmont et al. (2022) contradicted these findings, suggesting that, on average, lawmakers would have been better off investing in index funds. Cherry et al. (2017) noted that some senators experienced substantial gains around key legislative events, while Huang and Xuan (2023) concluded that any abnormal performance essentially vanished after the STOCK Act was enacted. Related analyses have shown that access to policymakers can provide an informational edge in capital markets, as demonstrated by Fons-Rosen et al. (2020) regarding trading linked to the 2008 Troubled Asset Relief Program.
This body of literature presents a complex story: while there are specific advantages, the narrative does not simply endorse the idea that “Congress always beats the market.” Our study narrows the focus to a pivotal group: congressional leaders. Instead of treating all lawmakers as homogenous, we investigate whether ascending to formal leadership positions—such as Speaker, floor leader, whip, or caucus chair—transforms the investment performance of a member.
Leadership and Trading Performance
Our research utilizes transaction-level data regarding every U.S. congressional stock trade from 1995 to 2021 and links them to firm characteristics, regulatory actions, procurement contracts, and corporate developments. We identify all individuals who have held leadership roles and match them with ‘average’ members based on similar tenure, party affiliation, chamber, age, and gender. We then observe both groups over time to compare their risk-adjusted returns before and after assuming leadership positions.
Before entering leadership, both future leaders and their matched peers experience similar underperformance relative to the market. However, after assuming leadership, their performance trajectories diverge significantly: leaders’ trades outperform those of their matched colleagues by approximately 40–50 percentage points per year. The control group does not exhibit a similar uptick in performance. Calendar-time portfolio regressions employing standard factor models further affirm that leaders’ daily alphas experience a marked improvement post-ascension, while non-leaders’ alphas remain unchanged.
Although leadership positions are limited—only 20 lawmakers in our dataset both traded before and after their ascension—the results indicate that leadership roles concentrate agenda-setting power, regulatory influence, and corporate attention. For those interested in investigating whether public authority can be financialized, this is where the evidence is most telling.
We then pose the question: how do leaders achieve such significant returns?
Channel 1: Political Information and Influence
The first mechanism involves what we refer to as the political information and influence channel. Leaders possess privileged insights into upcoming legislation, advancing regulatory priorities, and the industries likely to face scrutiny. In majority leadership roles, they often help determine these outcomes. We conducted several tests related to this channel.
- Partisan control. When leaders’ party holds the majority in the chamber, their trades yield substantially higher profits compared to when they are in the minority. Returns increase with control of the legislative agenda.
- Regulatory actions. We monitor regulatory events—such as investigations, enforcement actions, and congressional hearings—that affect the firms whose stocks are traded. Notably, leaders’ stock sales are accompanied by a significant rise in adverse regulatory events within the following 3–12 months, whereas purchases do not correlate with a similar decline. This suggests leaders may sell before unfavorable political or regulatory developments.
The findings indicate that leaders engage in anticipatory trading surrounding political events. However, the question remains: Are they merely informed spectators, or do they also influence outcomes in ways that enhance their portfolios?
- Legislative voting. Analyzing bill-level data for all measures brought to the floor, we identify those that carry substantial economic implications. For each trade made by a leader, we review relevant bills introduced in subsequent months and classify them based on whether they are likely to benefit or harm the traded company. We find that after purchasing stocks, the leader’s party is significantly more likely to support bills favorable to the firm and oppose those detrimental to it. This alignment in legislative activity increases substantially compared to matched non-leaders over medium-term windows.
- Procurement contracts. Utilizing data from the Federal Procurement Data System, we explore whether firms in which leaders invest subsequently secure more government contracts. They do: such purchases are followed by notable increases in both the value of contracts awarded and the share of sole-source contracts. Given the vast number of contracts awarded yearly, and the narrow subset of firms in which leaders invest, this pattern cannot be wholly ascribed to passive foresight. It is more indicative of selective influence over the distribution of public funds. These procurement findings align with broader evidence showing that discretion in public procurement can lead to favoritism and rent extraction (Bosio et al. 2020), and that strong ties between politicians and corporations may inflate public contract costs (Baránek and Titl 2024).
Collectively, these tests reveal a political channel through which leaders both anticipate and actively shape the regulatory landscape in ways that benefit their personal investments.
Channel 2: Corporate Access
The second mechanism is known as the corporate access channel. Firms are highly motivated to foster relationships with powerful lawmakers, especially those who influence legislative agendas or head committee meetings. Sharing sensitive information carries risks, meaning that firms may strategically favor leaders, providing them with a selective informational advantage. We again present two lines of evidence.
- Connections pay. After ascending to leadership, those individuals experience significantly higher abnormal returns when trading stocks of companies that have either contributed to their recent election campaigns or are based in their home states. Similar patterns are not observable among otherwise comparable non-leaders.
- Predicting corporate news. Leaders’ purchases are often followed by favorable news, while their sales coincide with negative developments. This predictive capacity is particularly pronounced in events controlled by executives (e.g., dividend changes, guidance revisions, or earnings delays). Moreover, leaders do not appear to anticipate external shocks better than others (e.g., lawsuits). Furthermore, these individuals did not exhibit this predictive ability prior to their leadership roles. This pattern strongly suggests that corporate insiders selectively disseminate material non-public information to lawmakers whose political influence makes them valuable allies.
Did the STOCK Act Fix the Problem?
The STOCK Act of 2012 was enacted with bipartisan commitments to “stop trading on congressional insight.” Follow-up research has shown that, on average, members’ abnormal returns diminished after its introduction, and politically connected hedge funds also faced some disadvantages (Gao and Huang 2016, Huang and Xuan 2023). For the typical legislator, the law may have indeed restricted opportunities for exploiting insider information.
However, the implications for leaders are less encouraging. In our dataset, their trading frequency declines post-2012—likely due to increased scrutiny—yet their average trade size and risk-adjusted returns largely remain stable. Calendar-time portfolio regressions indicate that post-ascension alphas continue to be positive and economically significant, even when portfolios are based on public disclosure timelines instead of actual execution dates.
Policy Implications: Focusing on the Apex of Influence
The findings of this study pertain to a small but influential segment of Congress: the select group of leaders at the top of the political hierarchy. We do not suggest that every lawmaker consistently outperforms the market—rather, existing literature indicates that rank-and-file members generally underperform. However, our study shows that when political power is highly concentrated, so too is the ability to exploit public office for trading advantages.
This power concentration complicates enforcement. Conventional insider trading regulations and transparency requirements do not adequately address a reality in which decision-makers both receive and produce price-sensitive information, and where conflicted behaviors can be legal yet detrimental to trust. So, what can be done?
One proposed solution, increasingly supported by reform advocates, is to impose a blanket ban on individual stock ownership for sitting members, allowing only investments in broad index funds or genuinely blind trusts. If this proves infeasible, legislators could shorten disclosure windows, increase penalties, and establish independent oversight for trades executed by those in leadership roles, in addition to enforcing stricter rules regarding procurement conflicts and legislative recusal.
Ultimately, the critical issue is not whether some members of Congress are “savvy investors,” but whether a healthy democracy should permit its most powerful officials to hold concentrated investments in companies whose fortunes they have the power to influence. Our research suggests that, particularly among congressional leaders, the intersection of political power and personal investment portfolios raises serious concerns.
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