Over 100 members of Congress have cosigned the Restore Trust in Congress Act, which would prohibit members of Congress and their immediate families from buying and selling individual stocks. Despite broad bipartisan support, congressional leadership has not yet allowed the bill to be brought to the floor.
A new working paper in the National Bureau of Economic Research indicates that stock-related gains are most concentrated among congressional leaders rather than rank-and-file lawmakers. The authors find that lawmakers who eventually rise to leadership roles perform roughly in line with comparable peers before entering leadership, but after entering leadership, they outperform those peers by an average of 47 percentage points annually.
The study, conducted by Shang-Jin Wei of Columbia University and Yifan Zhou of Xi’an Jiaotong-Liverpool University, identifies two main drivers of these elevated returns. The first is direct political influence, which is most apparent when the leader’s party controls the chamber. In those circumstances, lawmakers in leadership and at the top of committees are more likely to sell shares before regulatory action and to buy them before federal contracts are issued or favorable legislation is enacted.
The other is that leadership figures and top committee chairs enjoy privileged access to nonpublic signals about major companies, particularly those tied to key donors or home-state industries. As a result, their trades tend to anticipate corporate developments and deliver substantially higher returns than the broader market.
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