Trading on Testosterone

MOVEMENTS in financial markets are correlated to the levels of hormones in the bodies of male traders, according to a study by two researchers from the University of Cambridge (newscientist.com).


Alex Eben Meyer
John Coates, a research fellow in neuroscience and finance, and Joe Herbert, a professor of neuroscience, sampled the saliva of 17 traders on a stock trading floor in London two times a day for eight days. They matched the men’s levels of testosterone and cortisol with the amounts of money the men lost or won on the markets. Men with elevated levels of testosterone, a hormone associated with aggression, made more money. When the markets were more volatile, the men showed higher levels of cortisol, considered a “stress hormone.”
But, as New Scientist asked, “which is the cause and which is the effect?”
According to the researchers’ analysis, the men who began their workdays with high levels of testosterone did better than those who did not.
“The popular view is that experienced traders can control their emotions,” Mr. Coates told New Scientist. “But, in fact, their endocrine systems are on fire.”
As with anything else, when it comes to hormones, it is possible to have (from a trader’s perspective) too much of a good thing. Excessive testosterone levels can lead a trader to make irrational decisions.
New Scientist pointed out that although cortisol can help people make more rational decisions during volatile trading periods, too much of it can lead to serious health problems like heart disease and arthritis, and, over time, diminish brain functions like memory.
If individual traders are affected by their hormone levels, does the same hold true for the markets as a whole? After all, the market is nothing more than an aggregate of the individual actions of traders. Mr. Coates thinks it is possible that “bubbles and crashes are coming from these steroids,” according to New Scientist.
If so, “central banks may lower interest rates only to find that traders still refuse to buy risky assets.”
Perhaps, he told New Scientist, “if more women and older men were trading, the markets would be more stable.”
The study was published by the Proceedings of the National Academy of Sciences (pnas.org).
$1 BILLION WASTED Even in the face of recession, spending on online advertising continues to soar. According to eMarketer, a research firm, this year’s spending will grow by 23 percent, to about $40 billion (emarketer.com). Search-related ads will continue to take the biggest chunk, but spending on display ads will also rise, by about 21 percent, to about $5.1 billion.
Nearly $1 billion of that will be “wasted,” though, according to Steve Rubel of the blog Micro Persuasion (micropersuasion.com). He based his conclusion on research by MarketingSherpa, which found that only 25 percent of Web users see display ads placed “below the fold” — meaning users would have to scroll down to see them. And that is where half of all display ads are placed (mediapost.com).
The situation amounts to “a train wreck waiting to happen,” Mr. Rubel wrote. “Advertisers are going to eventually wake up and recognize that unless it’s a highly visible placement, banners get you largely nowhere.”
PAWNS IN THEIR GAME In some ways, eBay can be thought of as the world’s biggest pawnshop. During a conference call with analysts this week, John Donahoe, eBay’s chief executive, was asked how the company might do during the recession (seekingalpha.com). EBay, he responded, is “a place where you can turn assets into cash in 7 to 14 days.”