Strong Like Bull: Testosterone, Trading, and The Market Mentality
The New York Times reports that “Movements in financial markets are correlated to the levels of hormones in the bodies of male traders, according to a study by two researchers from the University of Cambridge.”
Here are some of the results. “According to the researchers’ analysis, the men who began their workdays with high levels of testosterone did better than those who did not.” But “Excessive testosterone levels can lead a trader to make irrational decisions.” Traders also released large amounts of coritsol which “can help people make more rational decisions during volatile trading periods, too much of it can lead to serious health problems like heart disease and arthritis, and, over time, diminish brain functions like memory.” As to what seemed to matter most: those who started the day with high testosterone had better trading results than those with lower or normal levels: “One trader went on a six-day winning streak, making twice as much money each day as the previous one. Over that period, his testosterone levels rose steadily, some 74 per cent.”
Apparently traders resemble football players: high energy, high success, and high, early burn out potential both physically and mentally just with less of the head-butting (at least as far as I know).
Furthermore it seems that male traders may be bulls and literally foster bull markets such that the events are not related to informed rational choices but rather are in fact “irrational exuberance.” (definition) As one of the authors, John Coates put it in the New Scientist article about the study, “The popular view is that experienced traders can control their emotions, … but in fact their endocrine systems are on fire.” Coates further suggested “Maybe bubbles and crashes are coming from these steroids,” and “maybe if more women and older men were trading, the markets would be more stable.”
Here are some odd possibilities. Traders, like football players and other athletes, will start to take steroids because they think it will enhance their trading wins. In response, all trading will be shifted to individual trading via E-Trade and the like because it would be better for a stable market. Individuals in turn will take steroids because they will want an edge and will believe that higher testosterone will help them pay for that flat screen or their kids’ education. In the end the market will continue as before and no one will really know why.
Oh in case you are wondering, as Susan Daicoff notes yes some attorneys (trial attorneys) tend to have high levels of testosterone according to one study. In addition “Testosterone levels are associated with energy, dominance, persistence, combativeness, focused attention, antisocial behavior, drug and alcohol use, marital discord, violent crime, competition, higher spatial ability and lower verbal ability, fewer smiles, actors, and tattooed people. Dabbs, Alford, and Fielden, 1998.” and “A 1979 study found female lawyers to be higher in testosterone than nonlawyers.”
Draw your own conclusions.
License: Creative Commons Attribution ShareAlike 2.5 License