Inside the Beltway: Senator Trading and Legislative Gains

Abstract Insider trading has long been scrutinized in corporate law, finance, and business ethics, yet whether politicians trade on insider information—and if so, whether this breaches their fiduciary duty—remains unsettled. Drawing on the perspectives of social contract theory and virtue ethics, this study examines the ethical implications of U.S. senators exploiting nonpublic, bill-related information for personal gain. We analyze a comprehensive dataset of senators’ equity trades from 2014 to 2021, matched with legislative bill data classified using natural language processing to identify key legislative milestones: introduction, engrossment, enrollment, and enactment. Our findings reveal that trades executed just prior to critical legislative events yield significant abnormal returns. We also document patterns consistent with stealth trading, in which senators sequentially trade leading up to legislative decisions. Furthermore, senators with greater legislative influence realize higher abnormal returns, highlighting the financial benefits of privileged information. To address these ethical concerns, we propose a “contingent freedom” framework, restricting senators’ trading during critical legislative periods. This approach aims to balance ethical integrity and individual financial autonomy by mitigating conflicts of interest.