Study: Lawmakers' Stock Trades Don't Outperform Market; Calls to Ban Persist

A new National Bureau of Economic Research paper examining every reported stock trade by members of Congress and their immediate family from 2012 through 2023 finds little evidence that lawmakers systematically beat the market.

The study, by political scientist Haotian (Barney) Chen and Dartmouth economist Bruce Sacerdote, updates and extends earlier research by lengthening the observation window through 2023, adding trades by spouses and dependent children where disclosure rules require them to be reported, and linking transactions to outside analyst recommendations and measures of retail investor sentiment gathered from social media.

Key findings

• Over the period studied, portfolios constructed from stocks members of Congress bought — and from those they sold — generally underperformed or, at best, matched broad market benchmarks.
• Rather than anticipating price moves, lawmakers’ trades tended to track public signals such as analysts’ buy and sell recommendations and prevailing retail investor sentiment.
• The authors conclude that, on average, members of Congress and their families behave more like ordinary, often mediocre, retail investors than a class of systematic insider traders.

Context and earlier work

The question of whether elected officials use nonpublic information for personal enrichment has been politically charged for decades. Studies from the late 1990s and early 2000s that suggested synthetic portfolios based on congressional trades outperformed market indices by substantial margins helped drive public concern and eventual policy responses, including the STOCK Act of 2012.

Subsequent research has pushed back on the idea of across-the-board, persistent gains. A 2013 paper titled “Capitol Losses” and later work by Sacerdote and collaborators have found little evidence that members of Congress, taken as a group, achieve meaningful informational advantages in their trading. In a 2022 Journal of Public Economics article, Sacerdote and co-authors reported no statistically meaningful outperformance for either chamber; in fact, over six months, House-bought stocks underperformed benchmarks by about 26 basis points, while stocks sold underperformed by about 11 basis points.

What the new study adds

Chen and Sacerdote’s NBER paper builds on those databases and connects individual congressional trades to the same cues retail investors receive: analyst recommendations and social-media–based sentiment measures. That linkage allows the authors to assess whether lawmakers’ timing and security selection reflect private policy information or widely available public signals.

Their finding — that trades largely move with public signals rather than ahead of them — implies one of two possibilities: either members do not exploit nonpublic policy information in a systematic way, or any potential advantage is offset by other factors such as legal risk, unsophisticated strategies, or other frictions.

Limits and contrary evidence

Average underperformance does not rule out isolated abuses. Other research shows important heterogeneity within Congress. For example, a study by economists Yifan Wei and Wei Zhou found that lawmakers who become party leaders — speakers, floor leaders and whips — earn higher returns after assuming leadership roles, raising the possibility that information or influence advantages may be concentrated at the top.

High-profile episodes have intensified public scrutiny. During the early weeks of the COVID-19 pandemic, several senators sold large amounts of stock after closed briefings on the virus; probes by the Department of Justice closed without charges. No sitting member of Congress has been prosecuted under the STOCK Act since it became law in April 2012.

Disclosure, enforcement and public opinion

The STOCK Act requires members of Congress and certain staff to report securities transactions over $1,000 within roughly 30 to 45 days and affirms that federal officials are subject to insider-trading prohibitions. The public disclosure regime has created a rich dataset that researchers can analyze and has enabled journalists, watchdogs and data firms to build near–real-time trackers of congressional trades by ticker and committee.

Enforcement remains uneven. Penalties for reporting violations are typically modest civil fines that watchdog groups say are often waived. Meanwhile, surveys consistently show broad public support — typically three-quarters to more than 80% of Americans — for banning members of Congress from trading individual stocks, often extending such restrictions to spouses and dependent children.

Policy debate

Members of both parties have proposed legislation that would go beyond disclosure and anti-misuse provisions. In the Senate, the HONEST Act (sponsored by Sens. Josh Hawley, R-Mo., and Gary Peters, D-Mich.) would bar lawmakers, their spouses and dependents from owning or trading individual stocks, limiting them to diversified vehicles such as mutual funds and U.S. Treasury securities. In the House, the TRUST in Congress Act (led by Reps. Seth Magaziner, D-R.I., and Chip Roy, R-Texas) would require divestment or placement of individual assets into qualified blind trusts.

House Speaker Mike Johnson has said he would consider a ban if it had “solid support” but also warned that strict limits on personal finances might deter some people from public office.

Conclusion

For Chen and Sacerdote, the STOCK Act’s most consequential legacy may be the disclosure-based dataset it created, which allows researchers to observe how lawmakers and their families actually invest. Their analysis finds little evidence that Congress as a whole is systematically using nonpublic information to earn outsized market returns.

Yet the political and ethical debate over whether lawmakers should be allowed to hold or trade shares in companies affected by their decisions is likely to persist. Even if the data suggest average members do not outperform professional benchmarks, questions about concentrated advantages, enforcement, transparency and public trust keep the issue alive in Washington and with voters.

Sources: National Bureau of Economic Research paper by Haotian (Barney) Chen and Bruce Sacerdote; Journal of Public Economics (2022) study by Sacerdote et al.; related academic research and public reporting on congressional trading and the STOCK Act.