Levels of the stress hormone cortisol and testosterone can predict the willingness of stockbrokers to take risks and be a destabilising influence on markets, a study has found.
The study, in both men and women, found elevated cortisol in men ment higher trading activity, mis-pricing and overall price instability.
More of both hormones is associated with investment in riskier assets, according to the study published in the journal Scientific Reports.
Researchers simulated a trading environment by having 142 men and women volunteers buy and sell assets among themselves.
They measured natural hormone levels in one experiment and artificially raised them in another.
When given doses of either hormone, the volunteers invested more in risky assets.
The researchers think the stressful and competitive environment of financial markets may promote high levels of cortisol and testosterone in traders.
Cortisol is elevated in response to physical or psychological stress, increasing blood sugar and preparing the body for a fight-or-flight response.
Previous studies have shown that men with higher testosterone levels are more likely to be confident and successful in competitive situations.
Dr Ed Roberts, from the Department of Medicine at Imperial College London, says: “Our aim is to understand more about what these hormones do. Then we can look at the environment in which traders work, and think about whether it’s too stressful or too competitive. These factors could be affecting traders’ hormones and having an impact on their decision-making.”
The unpredictability of human behaviour makes the financial markets partly an art form as well as a science, as investors try to guess the direction of sentiment as well as the financial health of companies.
“The results suggest that cortisol and testosterone promote risky investment behaviour in the short run,” says Dr Roberts.
“We only looked at the acute effects of the hormones in the lab. It would be interesting to measure traders’ hormone levels in the real world, and also to see what the longer term effects might be.”