Testosterone Levels Among Financial Traders Affect Performance
British study found those with more of the male hormone in the morning made more money
MONDAY, April 14, 2008 (HealthDay News) -- New research out of Britain finds that financial traders who wake up with high levels of the male hormone testosterone tend to make more money that day, probably because they feel more daring.
On the flip side, traders with higher levels of the stress hormone cortisol tend to be more cautious.
"We think that, during bubbles, traders are experiencing extremely high levels of testosterone, and this is affecting not only their judgment, but the ability of monetary policy to control bubbles," said study author John Coates, a research fellow at Judge Business School and the department of physiology development in neuroscience at the University of Cambridge in Britain. "Alan Greenspan spent most of his career trying to stop a bubble and never succeeded. Why are these things so hard to stop?"
The findings are consistent with previous research, said Dr. Julio Licinio, chairman of the department of psychiatry and behavioral sciences at the University of Miami Miller School of Medicine. ""If testosterone is higher, you push yourself more," he said.
In fact, testosterone is linked with sexual and competitive behavior. It rises in athletes before competition, and even more if they win, while falling in those who lose.
Cortisol, on the other hand, responds to stress and to uncertain situations.
But how do these hormones respond to financial risk-taking?
To find out, Coates, who once ran a derivatives desk at Deutsch Bank on Wall Street, recruited 17 London financial traders to participate in the study. The findings were published in this week's issue of the Proceedings of the National Academy of Sciences.
Thirteen traded mainly European fixed income futures while, for the remaining four, the main asset traded was the Dax (German stock index futures) or Eurostox (European Equity Index). Traders ranged in age from 18 to 38, and annual income ranged from about $24,000 to more than more than $10 million. The nominal size of single trades ranged from about $200,000 to $1 billion.
For eight consecutive days, twice a day (at 11 a.m. and 4 p.m.), participants deposited a small amount of saliva into a vial which was analyzed for testosterone and cortisol levels. These were then correlated with profit-and-loss figures for the same times of day.
The study was conducted on a real trading floor, so the risks and rewards would be equally real. And, as best they could, the researchers timed it with a period of market volatility (namely one that immediately preceded and included key U.S. economic releases).
High testosterone levels were correlated with greater profitability, while higher cortisol levels (which rose as much as 500 percent during one day) correlated with uncertainty.
"These heightened levels of steroids have implications both for the economy but also for traders as well," Coates said. "Chronically high levels of steroids have a debilitating effect on the body."
As for the financial markets, manipulating traders' hormones so as to manipulate the economy is out of the question. But, Coates said, "I think you would find a very different financial system if there were more women and older men on trading floors."
The National Library of Medicine has more on testosterone.