National Academy of Sciences/PNAS (2008).

Up to the challenge?
Stock trading can provoke hormone responses similar to those during physical competition.

Bad Day for the Dow? Blame Hormones

Hormones may be wreaking havoc on the stock market. A new study shows that traders make more money--and could even be driving up stock prices--when they have more testosterone in their system. Conversely, an unstable day on the trading floor can boost levels of the stress hormone cortisol, which could cause traders to be more cautious about selling stocks and lead to a market downturn.

Testosterone and cortisol both play important roles in stress and competition. When men are faced with a mano-a-mano physical challenge, their bodies boost testosterone levels in hopes of gaining an edge. Cortisol levels also rise, as part of the "fight or flight" mechanism that prepares for battle, evaluates the threat, and generally leads to more cautious behavior. John Coates, a neuroscience research fellow at the University of Cambridge, U.K., wondered if the hormones were also important for high-stakes mental challenges, such as stock trading. A former Wall Street trader himself, Coates says the idea came to him during the dot-com boom, when traders "seemed to be on a drug, exhibiting manic behavior." When the bubble burst, he says, "they were really like people with a hangover."

To test his hunch, Coates and colleagues hit a working trading floor in London and followed 17 male traders for eight consecutive business days. The team measured steroid levels of the traders at 11:00 a.m. and 4:00 p.m. each day, times that bookend most market activity. Elevated levels of testosterone were real performance-enhancers, the team reports online this week in the Proceedings of the National Academy of Sciences, with high morning levels predicting a profitable day on the floor. The effect worked both ways: Traders who made a healthy profit had more testosterone at the end of the day than traders who fared poorly. Coates likens this to the "winner's effect" observed in human competition. At the end of a wrestling or tennis match between two men, for example, the loser's testosterone levels drop back to baseline, whereas the winner gets a boost that provides him with more confidence, less aversion to risks, and an advantage over his next opponent. As for financial markets, the team speculates that a sustained surfeit of testosterone levels could lead to irrational risk-taking that would help drive up stock prices.

Cortisol, meanwhile, seems to be correlated with an unstable market. Days on which stock prices rode a roller coaster resulted in high levels of the hormone in the evening. "Cortisol is likely, therefore, to rise in a market crash and, by increasing risk aversion, to exaggerate the market's downward movement," the researchers write.

Klaus Miczek, an aggression researcher at Tufts University in Medford, Massachusetts, says the study is compelling but cautions that other variables may be involved. It's difficult to pin down the market's influence on hormonal changes when marital status and other factors are also known to effect testosterone levels, he says. Still, Miczek finds it interesting that hormone levels changed as much as they did, considering that Coates's group didn't study stereotypical stock traders "screaming and yelling and signaling." Instead, the subjects spent their days in less physical confrontations, monitoring prices and listening to live news feeds at a bank of computer screens. Apparently, Miczek says, "key presses and mouse clicks" are enough to get the testosterone flowing when money's on the line.

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