Elevated testosterone linked to 'reckless' financial trading, study finds

A stock market study conducted by a London, Ont., university has found that participants who were given a topical gel of testosterone made higher bids, thinking they could sell at even higher prices, than those who received a placebo treatment.

Participants did mock trading amongst themselves, some with testosterone gel and some without

The New York Stock Exchange on Tuesday, May 2, 2017. (Richard Drew/Associated Press)

It's no secret financial traders have always been predominately male.

So, when a group of researchers with the Ivey Business School at Western University in London, Ont., set out to at look at the role of testosterone on the markets, it wasn't a far-flung idea.

"We wanted to simulate what happens when people are at elevated levels ... how would they trade with high testosterone," said Ivey assistant finance professor and researcher Amos Nadler in an interview with CBC Radio's London Morning.

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. (Courtesy: Ivey School of Business, Western University)

The result? 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 behaviour 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 tonnes 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."

The research paper, titled The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading, will appear in an upcoming issue of the publication, Management Science.