I read with great interest an article in the Straits Times yesterday that linked the amount of testosterone in the body and the rise in the stock market. I managed to find the same article in the internet here.
In the article, it mentions that traders performed better when they had higher morning levels of testosterone. This finding intrigued me. The two researchers involved found that “when traders did well and made money, they didn’t do it solely through cleverness and cerebral dexterity.” You mean the years of experience of a trader doesn’t really matter? Does it mean that a newbie with higher morning levels of testosterone can whip apart an experienced trader? That’s what the experimental results are suggesting but I cannot quite agree with it. Experience does matter and the sample size of only 17 traders is just not large enough to warrant such a conclusion that more the morning levels of testosterone, the more money traders make.
I agree with something in the article though. When you keep on winning in the market, you get a “winner effect”. This winner effect boosts “confidence and risk appetite, testosterone priming makes that winner more likely to win again, and successive winning can push testosterone to counterproductive levels… The more markets rise, the more confident and risk-seeking traders and investors become. The ultimate outcome is a market of people largely convinced of their own invincibility and ready to take irrational risks confident in the outcome being yet another victory”. This is how bubbles are created. This creation of a bubble and the subsequent bursting creates tons of opportunities for those who are sane enough not to take part in the euphoria.
Now, where’s the testosterone index to replace the Straits Times Index?