Do Women Make Better Traders?
Contributed by Alana Elsner
A small bead drops from just below his hairline – picking up speed as it falls. Conscious of this, he wipes the sweat from his brow, trying to focus on the task set before him. Even the most nimble move could mean the difference between winning and losing- between life and death. As the old saying goes, “No guts, no glory.” As the moment nears, his heart beats faster. Adrenaline rushes through his veins. And finally, finally, comes the moment of truth. THE TRADE.
A recent University of Cambridge study, published last Monday, reveals how testosterone can affect a trader. In the study, traders gave swabs of their saliva that were then tested for testosterone levels. Men who began the trading day with high levels of testosterone ended up with better earnings at close. The study concluded that same rush men get from a high intensity sports games is also pronounced in male traders. As testosterone pumps through their system, traders have a “winner effect”- the initial invincible feeling after achieving gains. This builds self-confidence and pushes men to become bigger risk-takers.
Many are quick to attribute the implications of this study to market volatility – a new sort of analysis that can be quantified like technical indicators. Yet volatility, just like risk, has two sides to the story. A recent Financial Times article noted that with the traders build an emotional bubble of risk and confidence, comparing it to the exuberance that surrounded the dot-com bubble. Just as the stock market has cycles, the testosterone hits a barrier and confidence plummets.
Scientists explain that, as losses increase, the hormone Cortisol kicks in, exaggerating a dampening effect by increasing risk aversion. Avoiding riskier stocks can push the entire market down, as seen in the recent mortgage crisis. Perhaps the prime example of this would be Société Générale’s rogue trader, Jerome Kerviel, who cost the firm 4.9 billion euro, or $7.2 billion, in unauthorized trades earlier this year. His risky behavior led to dangerous trades and severe losses for one of Europe’s top financial banks.
The repercussions of the Cambridge study mean that human biology must be taken into account when explaining financial markets. Some people are already asking whether men should monitor hormone levels or even take female hormones. While women may feel the same rush of adrenaline or excitement from a good trade, they do not have the naturally occurring testosterone levels that men possess. Yet women traders are noticeably absent in the study- as in the field in general. This may be because women do not have the variable scientists were screening for- that hormone accounting for hairy chests and deep voices. But it begs the question, because they lack these testosterone surges and their cyclical effects, might women be better traders than men?
