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Sunday World - - World Of Jobs - DAN LADLEY The Wolf of Wall Street

WHILE the scenes de­picted in the film

might be ex­treme, they do re­flect a truth: that the world of finance is over­whelm­ingly male. It is this male-dom­i­nant cul­ture, fu­elled by testos­terone, that has been blamed by reg­u­la­tors, aca­demics and the pop­u­lar press for in­sta­bil­ity and crashes in the fi­nan­cial mar­kets. And with rea­son.

Ex­per­i­ments con­ducted by psy­chol­o­gists and oth­ers have shown how testos­terone af­fects de­ci­sion-mak­ing and in par­tic­u­lar in­di­vid­ual at­ti­tudes to risk. Peo­ple with higher lev­els of testos­terone are more likely to take big­ger risks.

Hor­mone lev­els, how­ever, change over time and re­spond to events. If some­one takes a chance and wins whether in a game, a bet, or a fi­nan­cial in­vest­ment their testos­terone lev­els go up. Con­versely, if they were to lose, it drops.

An in­di­vid­ual who gam­bles and wins will have higher testos­terone lev­els and be more likely to make larger gam­bles in fu­ture. This ef­fect is stronger in men than women be­cause their lev­els of the hor­mone are more sen­si­tive, mak­ing male risk aver­sion more volatile over time.

In­ves­ti­ga­tions into the hor­mone lev­els of traders in fi­nan­cial mar­kets have shown that they are sub­ject to this ef­fect

mak­ing prof­its leads them to a will­ing­ness to take big­ger risks. In a mar­ket dom­i­nated by men, this ef­fect could have sub­stan­tial con­se­quences.

It is dif­fi­cult to gen­er­alise about the ef­fect of hor­mone lev­els on the mar­ket as

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a whole, as most stud­ies only look at in­di­vid­u­als or small groups of traders. At any given time, some traders will be mak­ing prof­its while oth­ers will be mak­ing losses, so the ef­fect of hormones on over­all mar­ket sta­bil­ity is un­clear. They may, as some claim, lead to in­sta­bil­ity, but the im­pact across the whole sec­tor could also can­cel it­self out.

So to get a clearer pic­ture of the ef­fects of hormones on the wider mar­ket, col­leagues and I con­structed a model of traders in a fi­nan­cial mar­ket and how the fluc­tu­a­tion in hor­mone lev­els might af­fect their de­ci­sions. We found that traders did be­come less risk averse when they were mak­ing a profit and more risk averse in re­sponse to losses. And the size of this ef­fect was de­ter­mined by the trader s gen­der men suf­fered from much greater swings in their risk-tak­ing be­hav­iour than women.

Us­ing this model, we then were able to con­sider the whole mar­ket and whether mar­ket be­hav­iour would change if there were more fe­male traders.

Our re­sults show that the pro­por­tion of fe­male traders does have a strong ef­fect on mar­ket sta­bil­ity. On a day-today ba­sis, a greater num­ber of fe­male traders re­sults in higher over­all volatil­ity the fre­quency of shifts in as­set prices is greater, al­though they tend to be rel­a­tively small. Ex­treme price changes, how­ever, are less com­mon when there are more fe­male traders.

This is sig­nif­i­cant for fi­nan­cial sta­bil­ity, as a larger num­ber of rel­a­tively small daily price changes, as seen when you have more fe­male traders, can be dealt with. Ex­treme price changes, such as those when you have more male traders, on the other hand, can cause real dif­fi­cul­ties in fi­nan­cial mar­kets, as traders and the mar­ket panic in re­sponse to sud­den swings. More fe­male traders may there­fore make the mar­kets more sta­ble.

Ladley is se­nior lec­turer in finance at the Univer­sity of Le­ices­ter. Source: http://the­con­ver­sa­tion.com/

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