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Stocks held by members of Congress have been beating the S&P 500 lately, but there\u2019s a subset of lawmakers who crush their peers: leadership.<\/p>\n
According to a recent working paper for the National Bureau of Economic Research, congressional leaders outperform back benchers by up to 47% a year. <\/p>\n
Shang-Jin Wei from Columbia University and Columbia Business School along with Yifan Zhou from Xi\u2019an 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.<\/p>\n
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.<\/p>\n
\u201cImportantly, whilst we observe a huge improvement in leaders\u2019 trading performance as they ascend to leadership roles, the matched \u2018regular\u2019 members\u2019 stock trading performance does not improve much,\u201d they wrote.<\/p>\n
Leadership\u2019s 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.<\/p>\n
In fact, Wei and Zhou found that leaders demonstrate much better returns on stock trades that are made when their party controls their chamber.<\/p>\n
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.<\/p>\n
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 \u201cprivileged access to firm-specific information.\u201d<\/p>\n
The upper echelon also influences how other members of Congress vote, and the paper found that a leader\u2019s party is much more likely to vote for bills that help firms whose stocks the leader held, or vote against bills that harmed them. And stocks owned by leadership tend to see increases in federal contract awards, especially sole-source contracts, over the following one to two years.<\/p>\n
\u201cThese results suggest that congressional leaders may not only trade on privileged knowledge, but also shape policy outcomes to enrich themselves,\u201d Wei and Zhou wrote.<\/p>\n
Stock trades by congressional leaders are even predictive, forecasting higher occurrences of positive or negative corporate news over the following year, they added. In particular, stock sales predict the number of hearings and regulatory actions over the coming year, though purchases don\u2019t.<\/p>\n
Investors have long suspected that Washington has a special advantage on Wall Street. That\u2019s given rise to more ETFs with political themes, including funds that track portfolios belonging to Democrats and Republicans in Congress.<\/p>\n
And Paul Pelosi, former House Speaker Nancy Pelosi\u2019s husband, even has a cult following among some investors who mimic his stock moves.<\/p>\n
Congress has tried to crack down on members\u2019 stock holdings. The STOCK Act of 2012 requires more timely disclosures, but some lawmakers want to ban trading completely.<\/p>\n
A bipartisan group of House members is pushing legislation that would prohibit members of Congress, their spouses, dependent children, and trustees from trading individual stocks, commodities, or futures.<\/p>\n
And this past week, a discharge petition was put forth that would force a vote in the House if it gets enough signatures. <\/p>\n
\u201cIf leadership wants to put forward a bill that would actually do that and end the corruption, we\u2019re all for it,\u201d said Rep. Anna Paulina Luna, R-Fla., on social media on Tuesday. \u201cBut we\u2019re tired of the partisan games. This is the most bipartisan bipartisan thing in U.S. history, and it\u2019s time that the House of Representatives listens to the American people.\u201d<\/p>\n<\/div>\n
#Leaders #Congress #outperform #rankandfile #lawmakers #stock #trades #year<\/p>\n","protected":false},"excerpt":{"rendered":"
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