Elevated Testosterone Linked to ‘Reckless’ Financial Trading, Study Finds

Wall Street has historically been a mans world.

And while women have made inroads all across the financial industry, men still seem to dominate trading desks. Now, one group of researchers has decided to more closely examine what drives a male trader to either hit a bid or lift an offering. A group of researchers with the Ivey Business School at Western University in London, Ont., set out to look at the role of testosterone on the markets.

In a recent CBC Canada report, the researchers explained that they wanted to simulate what happens when people are at elevated levels … how would they trade with high testosterone.

For their “experimental market” study, researchers divided 140 men into two groups and let them do mock trading amongst themselves. One group received a placebo treatment – the other, a topical gel containing testosterone.

Amos Nadler is an assistant finance professor with the Ivey Business School at Western University. He was involved in the study on financial trading and testosterone. He told CBC that the testosterone-fuelled group was more reckless in its trading, willing to bid well above the value of a given commodity in hopes of a higher return. Researchers say the behavior increased the odds of a market crash.

By comparison, the placebo group was trading more rationally, buying low to sell high, instead of buying high to sell higher.

“Your body produces more testosterone when you prepared for a challenge … even more testosterone when you are winning,” said Nadler.

The Wall Street experience

When the financial crash hit Wall Street a decade ago, a funny thing happened. Male financial executives started turning to doctors for testosterone supplements in hopes it would boost their output and sharpen their faculties.

“All of these men are under tons of stress, and stress will reduce their levels of testosterone,” said Manhattan-based Dr. Lionel Bissoon in a story in the Financial Times in 2012

Nadler said studies based on gender rather than the male hormone found that women also tend to keep a more level head in the high-adrenalin setting of a trading floor.

“Single males over-traded and lost the most money, while women tend to be more conservative and actually make more money than men,” said Nadler

Impulsive trading can sometimes be good

The Ivey study was done in collaboration with the University of Oxford and Claremont Graduate University in Claremont, Calif.

While it found that testosterone clearly played a role in more reckless trading and spending, Nadler cautions male traders aren’t all bad.

“Being slightly more impulsive can be a good thing … there are some results that showed the higher-testosterone guys made a bit more money than their counterparts,” said Nadler.

“It can also be very harmful in some situations if you are being impulsive.”