Lehman Sisters Wouldn't Have Failed
Tue 07 December 2010
, John Cookson, bigthink.com
The financial firms on Wall Street continue to be dominated by men. But research indicates that women may be better suited than men, biochemically, to succeed as traders and fund managers. It is all about hormones this time. Really!
"It is entirely possible that when it comes to making and losing money, women are less hormonal than men," John Coates, who studies the biochemical underpinnings of financial markets at Cambridge University, told Big Think.
A former Wall Street trader, Coates says his interest in the effects of hormones on trading was sparked by watching the behavior of male traders during the dot-com boom: "They had become delusional, euphoric, had racing thoughts, diminished need for sleep; they were taking way too much risk, getting hornier that usual," he recalls. "It’s not that Wall Street was selecting this type of person, because they weren’t like that before the bubble and they weren’t like that after the bubble. ... I suspected there was a chemical involved."
His research led him to the conclusion that economic bubbles "are a male phenomenon," a result of increased levels of testosterone that contribute to greater and greater confidence and appetite for risk. He says this testosterone boost is due to an evolutionary adaptation shared by males across species called the "Winner's Effect." After a competition, the winner comes out with higher levels of testosterone, while the loser comes out with lower levels.
But increased testosterone only increases performance up to a point. "As hormones increase in your body, your performance improves, until you get to what might be called the optimal level of this hormone for performing this task," says Coates. "If the hormone continues to rise, then your performance becomes impaired," he says, adding that overconfidence and poor risk planning can be outcomes of that impairment.
Coates says that because women have roughly 10% the amount of testosterone that men do, increasing the number of women in finance can dampen hormone-driven economic swings. But it isn’t simply that men are more reckless traders because of testosterone. Other research finds that women are better calibrated, biochemically, to manage risk in a bear market—including the risk central to a return on investment—because of the chemical cortisol.
"Men's cortisol levels respond very powerfully from competitive situations, and women not so much. Women's cortisol responses and stress responses seem more powerful from social stressors." According to this theory, which Coates has begun testing, a male's cortisol-fueled stress response might exacerbate a bear or middling market by responding with skewed memories and anxiety to events, whereas a female risk response would be more stable across a variety of circumstances.
The numbers don't lie, says Coates. Studies show that Hedge funds run by women turned an annual rate of return of 9% between 2000 and 2009—versus 5.82% from funds run by men. And men make 45 percent more trades than their female counterparts do—a gap that reduces their net returns by 2.65 percentage points per year compared with the 1.72 percentage points women lose on trading fees.
So would the recession would have been as bad—or would have happened at all—if women had had a larger presence in the financial sector?
Certainly those who invested with women did better during the depths of the financial crisis; while funds run by men dropped 19%, those run by women were down only 9.6%.
Read the whole article
Articles in Money
- Are Men the Real Winners with the Rise of Female Breadwinners? (article, 09-04-2012)
- Wage gap still there, unless you are a house-sitter (article, 26-03-2012)
- Oproep Kroes verzandt in gedateerd gesprek bij Pauw&Witteman (video, 15-03-2012)
- Emotion Analytics: The Missing Ingredient in Risk Management (article, 13-02-2012)
- Mine's Bigger than Yours: Challenges of Being a Female Breadwinner (article, 05-12-2011)
- 10 Things Baby Boomers Won't Tell you (article, 21-11-2011)
- Negotiate for…your family, friends, colleagues (article, 15-11-2011)
- 5 Tips to remember next time you negotiate a raise (article, 07-11-2011)
- Female leaders share advice at Wall Street Conference (article, 24-10-2011)
- Sonia Trocmé on CCTV (video, 24-10-2011)
- An inspirational journey (video, 10-10-2011)
- It - literally - doesn't pay to be nice (article, 05-09-2011)
- Effect van loopbaanonderbreking op salaris vrouwen (article, 18-07-2011)
- Aandeel e-shoppers in 2010 verder gestegen (article, 04-07-2011)
- Leuk werk? Alleen geld telt... (article, 27-06-2012)
- Bubble story (video, 05-06-2011)
- Serious Play: The Business of Social Currency (article, 17-05-2011)
- Banksparen steeds populairder (article, 02-05-2011)
- Remaking Portugal Telecom: An interview with CEO Zeinal Bava (article, 03-05-2011)
- Inkomen Japanse vrouwen passeert dat van mannen (article, 19-04-2011)
- Nu gaan vrouwen de best betaalde banen inpikken (article, 11-04-2011)
- Too expensive? Don’t listen to that little voice (article, 29-03-2011)
- Bedrijven scoren beter met vrouwen (article, 22-03-2011)
- Vrouwen werken meer voor minder (article, 15-03-2011)
- Whose money is it? (article, 25-01-2011)
- Ladies, Should You Ask For It? (article, 25-01-2011)
- Budgets are sexy (article, 18-01-2011)
- Young British women reverse pay gap (article, 12-12-2010)
- Lehman Sisters Wouldn't Have Failed (article, 07-12-2010)
- Chocolate will be the future caviar (article, 20-11-2010)
- Banking on gender diversity (article, 08-11-2010)
- European employees: ‘management are fraudsters’ (article, 19-05-2010)
- Women and money (article, 03-04-2010)
- Making cash with ‘socialnomics’ (article, 29-03-2010)
- ‘Can you afford your life?’ (article, 25-03-2010)
- Review: The four pillars of investing (article, 23-03-2010)
- Beat the tax office to it and start now! (article, 09-03-2010)
- ‘Every quality has its price’ (article, 02-02-2010)
- Suze Orman’s 2010 personal finance tips (article, 22-01-2010)
- Success in your work, success in your wallet... (article, 01-01-2010)
- Poll: I manage My Money at home... (article, 01-01-2010)
- Your money and you: (article, 01-01-2010)
- My money… (article, 01-01-2010)
Columns in Money
- The remedies for capitalism (25-04-2011, Paul Polman)
- Capitalism for the long term (19-04-2011, Dominic Barton, McKinsey/ Harvard Business Review)
- Review: 'The four pillars of investing' (16-04-2010, Alberta Opoku)
- ‘The Total Money Makeover’ (26-02-2010, Alberta Opoku)
- Make your money work at home too (21-12-2009, Marie-Pauline Luger & Dorieke Mulder)
- A tricky question (05-09-2009, Henriëtte Prast)