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The role of hormones in financial markets

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  • Bose, Subir
  • Ladley, Daniel
  • Li, Xin

Abstract

Steroid hormones, such as testosterone, have been shown to affect risk preferences in financial traders with high levels leading to excessive risk-taking. Hormone levels, in turn, are affected by trading outcomes as well as by gender - males are more sensitive to stimuli than females. We develop a model to investigate the effects of hormones on financial market stability and trader performance. An increase in the proportion of female traders does not necessarily make markets less volatile; however, it reduces the occurrence of market crashes. Male traders on average under-perform females, although the best performing individuals are more likely to be male.

Suggested Citation

  • Bose, Subir & Ladley, Daniel & Li, Xin, 2020. "The role of hormones in financial markets," International Review of Financial Analysis, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:finana:v:67:y:2020:i:c:s1057521918307890
    DOI: 10.1016/j.irfa.2019.101434
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    More about this item

    Keywords

    Gender; Hormones; Endogenous risk preference; Market stability; Trader performance;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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