Testosterone and the Stock Market

Kamie Berry | October 11th, 2017

Most professional stock market traders in the United States today are young males. Aside from a glaring lack of diversity, this gender imbalance in the financial industry may also cause instability in the stock market itself.

A new study published in the journal Management Science has shown a link between testosterone levels and rash decision making by stock traders. Testosterone is a hormone found in both sexes, but it is more prevalent in males, especially younger males.

investors.com

To conduct the study, researchers from several major universities recruited 140 young men as their participants. These men then took part in a simulated market trading exercise. Before the trading exercise, the participants were either given a topical gel that contained testosterone or one that was a placebo.

The men bought and sold fake assets during the simulation, just as they would in a real trading environment. They also posted bids and performed other actions typical in the stock market trading industry. To make the simulation as real as possible, the participants’ performance was rewarded with real money.

The results of the experiment were quite revealing. The fake traders who received the placebo gel were less likely to take risks. They employed more traditional trading techniques, like buying low and selling high. But the men who applied the testosterone gel employed riskier strategies, such as buying high in the hopes they could sell at an even higher price later. It is this risky and aggressive behavior on the part of large groups of stock traders that can lead to market bubbles and instability.

The researchers say that this means that biology should be taken into account in professional settings like this, where risky decision-making can upset an entire economy. One of their suggestions is to implement a cool-down period before such decisions are acted upon so a more thorough evaluation of an assets true value can be made. Trading firms can also limit the amount of risk younger traders can take until they have built up a certain level of experience and maturity and have proven they are capable of making sound trading decisions.

Of course, another way to improve the stability of the stock market is to make sure there are more women involved on the trading floor. Other studies have shown that having more women involved in trading decisions helps the stock market stay in better balance.

Whether or not trading firms will actually act on these findings remains to be seen.

Next Article
  • A Sealed Garden That Was Last Watered 46 Years Ago

    One keen gardener was curious in 1960 and decided to plant a seed in a bottle which he promptly sealed up. David Latimer never thought he would be on to one of the first self-sustaining ecosystems, which has become an amazing case study for biologists around the world. When you break it down, this plant...

    Read More
  • Olympics Athletes Are Zapping Their Brain For Performance Increases

    A strange phenomenon is taking over the sports industry at an alarming pace, one that sees professional athletes zapping their brain in name of increasing their performance. The technology uses brain simulation with the goal of increasing everything an Olympic athlete needs to grab that gold medal. The basic explanation...

    Read More
  • The Sea Creature That Eats Its Own Brain

    There is one little creature that lives in tidal pools and over shallow ocean areas, that has a rather strange and fascinating characteristic: it eats its own brain. The sea squirt is a little undersea animal which is part of the tunicate family. Whenever poked or threatened, this small animal...

    Read More
  • Pokemon Go A Security Fear For The Pentagon

    If you happen to love Pokemon Go but work for the American government at the Pentagon, well that is just too bad. All employees are banned from playing Pokemon Go inside the Pentagon walls, due to its mapping features. Anyone working at the facility in Arlington, Virginia has been given...

    Read More
  • The Infamous Porthemmet Beach Hoax

    In some regions of the world no matter how much the local area survives off tourism, there is just a general distaste for tourists in general. All these strangers tramping around your Townsquare asking for directions, one of those places in Wales. With all the coastlines and beautiful beaches, locals can tend to get very...

    Read More
  • A Castaway Who Survived 14 Months At Sea

    One man defied all the odds and was able to survive lost at sea for over 14 months. This is no story of being washed up on an island and finding coconuts, this man just drifted around the ocean for months on end. He is called Jose Salvador Alvarenga and...

    Read More
  • The Romans Actually Invented The Swiss Army Knife

    When you think of the Swiss Army Knife you would have thought it was invented in Switzerland - and it was, unless you count Roman’s version as the first one. A spoon, a knife, a fork, and toothpick - all the tools you need to extract the meat out of the shells of seafood. This...

    Read More