Study: Testosterone May Impact Stock Market
Here’s a bit of news that’s sure to inspire some uncomfortable jokes on the trading floor: A Cambridge University research team found that stock traders’ performance, and their willingness to take risks, may be partly, well, hormonal.
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They found that daily testosterone levels were significantly higher on days when traders made more than their average profit.
They ascribe this to the “winner effect”, seen in sportsmen, in which success increases testosterone levels, which in turn increase feelings of confidence and ability to take risks, which then increase the chances of further profits.
However, if repeated too much, they say, the rising testosterone levels could eventually compromise their ability to make rational decisions, as the traders take bigger and bigger risks during so-called “bubbles”, where the market rises sharply.
Prof Joe Herbert, one of the study’s authors, said: “Our work suggests that these decisions may be biased by emotional and hormonal factors that have not so far been considered in any detail.
“Hormones may be important for determining how well an individual trader performs in the stressful and competitive world of the market.”
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