LEICESTER, England, March 7 (UPI) — New research suggests more equal gender balance among financial traders could stabilize the market and diminish the risk of a crash.
Many psychological studies have demonstrated the effects of hormones on decision making and risk taking. Because men and women differ to varying degrees in their hormonal makeup, the ratio of men to women traders can affect the behavior of financial markets.
After analyzing the tendencies and performances of male and female traders at major financial firms in England, researchers at the University of Leicester designed a model to predict how gender ratios affect financial markets.
The model — detailed in a new scientific paper — suggests increasing the number of female traders would create a more volatile market, but one less susceptible to extreme crashes.
In creating the model, researchers highlighted some of the ways male and females differ in their trading tendencies. Their work also showed how financial firms tend to promote a male-dominated staff.
Previous research has shown that steroid hormones like testosterone encourage both greater risk taking and irrational risk taking. Studies also show men have more sensitive hormonal responses to trading outcomes.
The latest study suggests these tendencies translate to more extreme profits for male traders. Many firms reward dramatic windfalls while ignoring consistent but more modest returns.
“Even though male traders may under-perform female traders, reward schemes in financial firms may still lead to large groups of male traders,” researcher Daniel Ladley, the deputy director of the Leicester Institute of Finance, said in a news release. “Financial bonus schemes typically reward the best performers and often lead to large numbers of other traders being let go, potentially even some of those making small profits.”
Researchers say male traders aren’t necessarily more skilled, but tend to be less risk averse and thus benefit more dramatically from good luck.
“The better performing female traders are less susceptible to these effects and so make extreme profits less frequently, but do lose less money,” Ladley said.
To encourage a more equitable trading floor in terms of gender, researchers say firms should reconsider the ways their reward their traders.