Keywords: Stock Market, Testosterone Levels, Financial Gain, Androgens, Testosterone and Financial Decision Making, Money Market and Testosterone, High Testosterone and Financial Risk Taking.
Testosterone an androgenic hormone that is well known to affect a man’s ability to concentrate, make decisions and can affect risk taking. There have been several studies that have investigated testosterone levels in stock traders and how testosterone levels affect trading behavior, financial risk taking and financial profits.
A study by Coates and Herbet from 2008, investigated testosterone levels in stock traders and how such levels related to financial risk taking, and financial return (profitability). Results of this study revealed male stock traders with higher testosterone levels made greater financial returns (profit) when their testosterone levels were highest compared to when their testosterone levels were lower. They also found that men who had higher testosterone levels were more likely to make riskier stock trades in the financial market.
The study recruited 17 male stock traders in the City of London. The hypothesis investigated was whether testosterone levels change significantly throughout the day as traders made or loss money. Measuring the levels of testosterone during those moments when stock traders had financial gains or losses and correlating these moments to hormone levels was of interest to the investigators. The investigators followed 17 male stock traders for 8 consecutive business days and took salivary testosterone tests twice per day at 11 am and 4pm and also during times of trading (especially when traders were making bulk trades). At each time of the trade, male traders would record their profit or loss. While other parameters were held constant the results were able to bare some insight that testosterone levels when highest gleaned riskier trading but also higher profits. One hypothesis to explain such results is that high testosterone levels during times of stress or concentration promotes fearlessness, persistence, performance enhancement and a thirst for risk. Elevated testosterone levels increase dopamine release in the brain, an “androgenic priming” for stimulating risk taking. These findings were expanded upon in studies by Apicella et. al Testosterone and Financial Risk Preferences.
In another study by Nadler et. al. The Bull of Wall Street: Experimental Analysis of Testosterone and Asset Trading, investment traders were given testosterone injections and observed how investment trading strategy, performance and mood were affected. Results from the study revealed stock traders who received testosterone replacement therapy were more likely to perceive prices as lower on average, and often felt they were buying stocks too low. Stock traders treated with testosterone were more likely to invest more capital in the market and increase their bid prices. Financial assets in this particular experimental setting were increased in stock traders who received testosterone compared to the control group.
It is believed by investigators that testosterone increases risk taking and enhances attempts to capitalize on financial gains, this may be to enhance social status. Testosterone is well known to affect cognition, mental clarity, the decision-making processes and may provoke risk taking that may have positive attributes as revealed in this study.