By IANS,
London : Guess what gives the markets a boost? Testosterone, according to a study.
The male hormone is known to boost confidence levels and also increase the appetite for risk – but too much of it can prompt irrational behaviour, the study found.
For example, stock market traders with high morning testosterone levels make more than average profits for the rest of that day. But too much of the hormone would begin to have the opposite effect on a trader’s profitability, by increasing excessive risk-taking.
Cambridge University researchers followed 17 male traders for eight consecutive business days. They took saliva samples at 11 a.m. and 4 p.m. daily, to measure hormone levels, before and after the bulk of the day’s trading.
Testosterone levels were significantly higher on days when traders made more than their month’s daily average takings than on other days.
Testosterone is a steroid hormone controlling competitive encounters as well as sexual behaviour. Testosterone in male athletes, for example, will rise prior to a competition and rise even further in a winning athlete (but decrease in a losing one).
During the study, traders experienced acutely raised cortisol in association with higher volatility in the markets and increased chances of making money during periods of higher volatility.
Cortisol is likely to rise in a market crash and, by increasing risk aversion, to exaggerate the market’s downward movement.
John Coates of Cambridge University and lead author of the study said: “Rising levels of testosterone and cortisol prepare traders for taking risk”.