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Foreign Exchange

Trading rooms: Hormonally yours, or mine

A piece of academic research from Cambridge University, which examined the hormone levels of a group of male traders, garnered a lot of media coverage this week.

The report’s lead author, John Coates, apparently used to work as a trader at Deutsche, although I haven’t been able to find out in which area.

Following his return to academia, Coates decided to examine whether there was a hormonal influence on the way traders behaved. Explaining why, Coates wrote in the Financial Times: “This was a question I asked while working on Wall Street during the dotcom bubble. Many traders at this time displayed manic behaviour and a sense of infallibility. Equally telling was that women appeared relatively unaffected. Both facts implicated a chemical such as testosterone.”

Coates and his colleagues did find that traders’ daily testosterone levels were higher when they made above-average profits. “We found that a trader’s morning testosterone level predicts his day’s profitability. We also found that a trader’s cortisol (a stress hormone) rises with both the variance of his trading results and the volatility of the market. Our results suggest that higher testosterone may contribute to economic return, whereas cortisol is increased by risk,” they say in the report.

The report is quite interesting for several reasons. Coates and his team sampled 17 male traders from a mid-sized trading floor of 260 dealers, of whom just four were female.

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