Over the years as an employee in the City I periodically held trading seminars. At times I was asked the gender question: Are girls better traders than boys (women/men)?

I think from memory I answered that women made better traders than men. Granted, I may have done it to appease any female members of the audience. Please don’t hold it against me. It can be a tricky business to conduct a 3-hour seminar when someone is sending you dagger-eyes throughout.

I just so happened to come across a piece of research from the UK, by Mr Coates and Mr Page. It is a rather lengthy research paper, so I will condense it into bullet points below.

The Testosterone and Big Profits Question

The question being asked is:

Do traders with high levels of testosterone have a better track record in financial markets?

• Researchers used the 2D:4D ratio (index finger vs. ring finger) as a measure of pre-natal androgen exposure

• They analysed 53 male high-frequency traders (essentially intra-day traders trading FTSE and DAX futures) over a 20-month period from 2005-2007 and found that the risk adjusted returns for the experienced traders were higher than the Dax index itself.

• They also found that a high level of testosterone among high frequency traders predicted higher long term profitability and a greater number of years of survival in the trading arena.

• “High testosterone traders may welcome more risk, but their return per unit of risk is not very different from the rest. So testosterone cannot explain the high Sharpe Ratios. So what does determine the higher returns? Coates and Page found that Sharpe Ratios increase over time because traders learn to make more money per unit of risk that take. Simply put, it’s trading experience that counts.”

The journalist goes on to ask:

“But was the traders’ outperformance restricted to the boom years of 2005-07? Did they fail miserably in the crash of 2008?”

The researchers had the same doubts, which is why they asked the managers at the firm where they had carried out the study about the performance of their traders.

“The managers provided data showing that the experienced traders remaining at the firm during 2008 made on average more money than they had during the study, with many of them having record years.”

“One trader, for example, enjoyed a 6-day winning streak that saw his profits soar to twice their historic average and his daily testosterone levels rise by 76%. And on days when the traders’ morning levels of testosterone were higher than normal, they made higher profits than days when they started off with low levels.”

The researchers ruled out individual circumstances by asking through a questionnaire if the subjects had received any important personal news or had eaten anything that might significantly interfere with their release of hormones. And they excluded the effects of overarching movements in the markets by showing that different traders experienced bursts of testosterone on different days.

“The moral of the story: testosterone plus experience=successful trading. But it wouldn’t be a surprise if broking firms start checking the length of the ring and index fingers of their personnel before assigning them to the trading desk.”

The obvious question to ask is: how do you explain that a man wakes up with higher levels of testosterone in the body than on other days?