Testosterone was shown to affect how traders made deals.
Hormonal changes can cause anyone to feel unstable, but it turns out they may also have the same effect on financial markets. A new study looks at whether testosterone directly affects decisions that drive up prices and destabilize markets.
The study—by researchers at Ivey Business School at the University of Western Ontario, the University of Oxford and Claremont Graduate University—used experimental stock markets with 140 male participants; some were given testosterone and some got a placebo before trading.
Across 17 sessions that allowed traders to sell, bid and offer money for shares of stock, the researchers observed that the testosterone-spiked traders were more likely to misprice assets. The hormone also appeared to boost the size and persistence of market bubbles in addition to causing the trader to increase bidding and selling prices and altered the trader's perception of a stock's current value even though the true values were known.
Firms may "benefit from a better understanding of when and how hormones assert their influence," according to researcher Amos Nadler, assistant professor of finance at Ivey Business School. He suggested "cool down" periods may help disrupt particularly volatile trading cycles.