No nonsense! I still get angry every time I remind myself that a politician can serve on a Congressional oversight committee for, say, the pharmaceutical industry, and at the same time legally buy and sell stock in the companies he controls. All they have to do is report transactions over $1,000 within 30 days. But if they don’t, the consequence is a $200 fine.
This is legalized insider trading if there ever was one.
Yet studies analyzing the stock trading of members of Congress generally show that this is the case perform worse than the market with their trades. A new study by Shang-Jin Wei and Yifan Zhou argues, however, that there is significant outperformance for a small segment of members of Congress: the leaders of the two parties.
For the period from 1995 to 2021, the study analyzed all reported stock transactions by all members of Congress. They then compared the performance of the top five Republican and Democratic party leaders with the rest of the caucus. The party leaders are the Speaker of the House and the Speaker of the Minority Party in the House, the party leaders and the whips of the two parties in the House. In addition, the leaders of the parties in the Senate and the party whips in the Senate are added, so that there are five people from each party.
The chart below shows the notable performance gap between party leaders and the rest of Congress over time.
Buy and hold abnormal returns in Congress between 2019 and 2021
Source: Wei and Zhou (2025)
But here comes the kicker. The above chart only covers the pandemic period from 2019 to 2021. The chart below extends the period examined to 1995 and looks at all the people who became congressional leaders at some point in their careers.
The diagram does not show the difference between leaders and non-leaders, but the performance of the same people before they become leaders and after. Miraculously, once a politician becomes party leader, their stock trading performance improves significantly.
Buy and hold abnormal returns of party leaders 1995 to 2021
Source: Wei and Zhou (2025)
Of course, the authors of the article point out that their results may be indirect and in no way evidence of insider trading. And I have sought legal advice before writing this post, and on behalf of my lawyers, I would like to state that I agree with these qualifications.
#Congressional #leaders #great #investors