Hormones Can Push Traders To Destabilize Financial Markets

The trading floor is a high-voltage environment with little room for misjudgement but hormones, a new study claims, could play spoil sport.

Researchers at Imperial College London published a study detailing the effects of the hormones cortisol and testosterone in traders. The study concluded that the trading floor can stimulate production of these hormones which can cause traders to take risky decisions while being optimistic about their actions. This, they warn, can affect financial markets and hence should be considered by policymakers.

For the study, researchers simulated the trading floor in the lab and monitored hormone levels through saliva samples in 142 volunteers who had to play a trading game. Volunteers with higher levels of cortisol were more likely to take risks associated with instability in prices.

Researchers then gave 75 male volunteers either cortisol or testosterone, alternatively with a placebo. While cortisol increased preference for riskier assets, testosterone made risk taking more optimistic.

"The results suggest that cortisol and testosterone promote risky investment behavior in the short run. 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," said Dr. Ed Roberts one of the lead authors.

The study was published in the journal Scientific Reports.