More women could mean safer sharemarket

(Reuters)
(Reuters)

A British study says increasing the number of women traders could reduce the chances of financial market crashes.

Research by the University of Leicester found: "An increase in the proportion of female traders does not necessarily make markets less volatile; however, it reduces the occurrence of market crashes."

The paper is the latest in a long line of studies suggesting women make better investors than men. The thinking is that women are less impulsive and are more likely to take a long term perspective.

The trouble is that trading rooms employ many more men than women. So the University's research team wanted to know whether a change in the gender balance would affect trading performance and the stability of the markets.

Subir Bose, Daniel Ladley and Xin Li looked at the effect of steroid hormones, such as testosterone, on market behaviour and trader performance.

The study found that "while female traders outperform their male counterparts in terms of average earnings, the best (and the worst) performing traders are likely to be male".

That is because the men were more likely to take big risks. If the initial risk-taking worked, it encouraged even more risk-taking.

"It is important to note that the better performing male traders in these experiments were not more skilled, but made larger profits through riding their luck," Dr Ladley says.

This meant they became more willing to take risks and increased the amount they were willing to invest.

In contrast, Dr Ladley says the better performing traders are less susceptible to the effect of successful risk-taking, "and make extreme profits less frequently, but do lose less money".

"These findings have concerning implications for financial firms along with regulators and those wishing to change the gender balance in the financial markets."

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