Leaders in Congress outperform rank-and-file lawmakers on stock trades by up to 47% a year, researchers say | Fortune

"Stocks held by members of Congress have been beating the S&P 500 lately, but there's a subset of lawmakers who crush their peers: leadership. According to a recent working paper for the National Bureau of Economic Research, congressional leaders outperform back benchers by up to 47% a year. Shang-Jin Wei from Columbia University and Columbia Business School along with Yifan Zhou from Xi'an Jiaotong-Liverpool University looked at lawmakers who ascended to leadership posts, such as Speaker of the House as well as House and Senate floor leaders, whips, and conference/caucus chairs."

"Between 1995 and 2021, there were 20 such leaders who made stock trades before and after rising to their posts. Wei and Zhou observed that lawmakers underperformed benchmarks before becoming leaders, then everything suddenly changed. "Importantly, whilst we observe a huge improvement in leaders' trading performance as they ascend to leadership roles, the matched 'regular' members' stock trading performance does not improve much," they wrote."

"Leadership's stock market edge stems in part from their ability to set the regulatory or legislation agenda, such as deciding if and when a particular bill will be put to a vote. Setting the agenda also gives leaders advanced knowledge of when certain actions will take place. In fact, Wei and Zhou found that leaders demonstrate much better returns on stock trades that are made when their party controls their chamber. In addition, being a leader also increases access to non-public information. The researchers said that while companies are reluctant to share such insider knowledge, they may prioritize revealing it to leaders over rank-and-file lawmakers. Leaders earn higher returns on companies that contribute to their campaigns or are headquartered in their states, which Wei and Zhou said could be attributable to "privileged access to firm-specific information.""

Between 1995 and 2021, twenty congressional leaders who traded stocks before and after rising to leadership posts showed a marked shift from underperforming benchmarks to substantially outperforming peers. Leaders' trading performance improves sharply upon ascent while regular members' performance does not. The advantage is linked to agenda-setting powers that provide advanced knowledge of legislative timing and to greater access to non-public, firm-specific information. Leaders earn especially strong returns when their party controls the chamber and on stocks of companies that contribute to their campaigns or are headquartered in their states.

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