This Is What Testosterone Has to Do with Stock Prices (Hint: A Lot)
Frustrated by fluctuating stock prices? Turns out you can now blame testosterone—and its effect on the young Wall Street guys who ride the highs and lows of the hormone (as well as the stock market) while making everyday decisions that have an impact on the economy and therefore your own bottom line.
photo.ua/ShutterstockHigh levels of testosterone have long been associated with dominant and aggressive behavior in men, but now it appears that high levels can cause male stock traders to mistakenly inflate stock prices, leading to terrible economic consequences. That’s what the authors of a new study published in the INFORMS journal Management Science concluded based on an experiment that was the first ever to test how testosterone levels (T-levels) can affect stock trading decisions. (Thinking of investing in stocks yourself? Make sure to check out these secrets from a financial advisor first.)
The study authors came together from four different research universities in California (the Center for Neuroeconomics Studies at Claremont Graduate University and the Behavioral Health Institute at Loma Linda University), Canada (Ivey Business School at Western University), and the United Kingdom (University of Oxford) with the theory that elevated T-levels cause male trading at overly high prices that aren’t supported by actual asset values and eventually lead to market crashes. This theory was based on existing knowledge, including that:
- Stock trades can be impacted by such outside factors as mood, sunshine, and even the results of sporting events.
- Most stock traders are men.
- Testosterone, which is responsible for “male” sex characteristics, also has feel-good properties that may reduce anxiety.
To test their theory, the researchers brought together 140 young male traders, and randomly assigned them to receive either a topical testosterone gel or a placebo. Then the traders were left to buy and sell stocks in a fictional trading market. Turned out that the traders who got the hormone significantly bid up the prices of assets, compared with those who received a placebo. They also demonstrated a tendency to buy at inflated prices with the perhaps misguided hope of selling higher (whereas the placebo group tended to stick with buying low with a seemingly more realistic intention of selling higher).
“This research suggests the need to consider hormonal influences on decision-making in professional settings, because biological factors can exacerbate capital risk,” Amos Nadler, PhD, of the Ivey School told Science Daily. “Perhaps the simplest recommendation is to implement ‘cool down’ periods to interrupt exceptionally positive feedback cycles and return the focus to assets’ fundamental valuations to reduce the possibility of biased decision-making.”