60-Second Mind

Stock Market Winners Get Big Payoff--In Testosterone

A study of male traders in London reveals an interesting correlation between testosterone levels and success on the trading floor.

Podcast Transcript: In 1973 a book called A Random Walk Down Wall Street rocked the trading world, as it suggested that a "blindfolded monkey" could be as successful as any experienced trader, because, the author Burton Malkiel argued, there is no way to predict stock prices in the short term.

That may be, but a study published in Proceedings of the National Academy of Sciences USA suggests there is market predictability in terms of trading success and hormones.

Researchers found that high testosterone levels in traders correlated with unusually successful trading days.

They followed 17 male traders over eight days, taking saliva samples, at 11 a.m. and at 4 p.m., venturing into the dangerous abyss between the traders' short-selling, margin-calling jaws. What they found was that testosterone levels were significantly higher on days when the market players beat their daily average profit.

According to the researchers, this increase can lead to more confidence and further winning, summed up in a positive feedback loop termed the "winner effect."

But the researchers speculate that long periods of elevated testosterone, as might be the case during a market bubble, can turn risk-taking into a form of addiction, thus exaggerating the market's upward turn—until it deflates under the exhausting pressure of impulsivity.

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