The role of hormones in financial markets. (2016)

“It’s been argued that financial traders are ‘too male’ and a more even gender balance would reduce volatility and help stabilize markets…. (Having more) female traders does not necessarily make markets less volatile; however, it reduces the occurrence of market crashes.”

Subir Bose, Daniel Ladley, Xin Li – all University of Leicester
Available at SSRN: https://ssrn.com/abstract=2743087

In the past decade, there has been much media focus on excessive risk-taking in financial markets. In particular, ‘reckless’ behaviour by traders was blamed, at least partly, for the turmoil of 2008.

It was argued that financial traders are ‘too male’ both in terms of numbers and the excessively masculine culture of trading floors. Consequently, academics, the popular press and policy makers have argued that a more even gender balance would reduce volatility and help stabilize markets.

“Steroid hormones, such as testosterone, have been shown to affect risk preferences in humans with high levels leading to excessive risk-taking. Hormone levels, in turn, are affected by trading outcomes as well as by gender – males are more sensitive to stimuli than females.”

The authors found that:

“An increase in the proportion of female traders does not necessarily make markets less volatile; however, it reduces the occurrence of market crashes.

“Male traders on average under-perform females, although the best performing individuals are more likely to be male.”

Access the full paper here: The role of hormones in financial markets