NYSE stock traders testosterone,

The April 14, 2008 online edition of the Proceedings of the National Academy of Sciences carried an intriguing article titled, “Endogenous steroids and financial risk taking on a London trading floor.” Both authors, J.M. Coates (JMC) and J. Herbert, are from the Department of Physiology, Development, and Neuroscience at Cambridge University. But JMC is also from the School of Business at Cambridge, and his main research interests are summarized by him thusly:

“I have been sampling endogenous steroids from traders on a trading floor in the City to determine the role of both testosterone and cortisol in their decision-making and in their performance. I compliment this field work with behavioral experiments set in the lab and in artificial asset markets.”


Raging hormones and bubbles

The rationale for this field of research is both compelling and fascinating. As stated by JMC,

“The waves of irrational exuberance and pessimism that destabilize the financial markets may be driven by naturally produced steroid hormones. With receptors in almost every nucleated cell in the body, steroids such as testosterone and cortisol affect the moods we experience, the memories we store and recall, and the behavior we display in competitive and risk-taking situations.”

This is absolutely fascinating because for the first time, we find a serious attempt to explain economic phenomena on the basis of human physiology.


Here’s what they found

The investigators took saliva samples from 17 male traders on a London stock trading floor twice daily over the course of eight days. They monitored the traders’ levels of testosterone, the hormone most often associated with aggression and sexual behavior, and cortisol, the so-called stress hormone.

They tracked those levels against the amount of money that a trader made or lost, and against the variation in the market. What they found was that when the traders made more money, they had elevated levels of testosterone. When the markets were particularly variable, they had elevated levels of cortisol.

Aha, you might aver; how do you know what is the cause and what is the effect? Isn’t it just as possible that traders had their testosterone levels go up as a consequence of making money?

Good thought, but…

A further analysis showed that traders who started their days with elevated testosterone made more money than those who didn’t. One trader went on a six-day winning streak, making twice as much money each day as the previous one. Over that period, his testosterone levels rose steadily, some 74%! This guy must have been a raging bull by the end of the week. Just think of the rollicking weekend he must have had.

So should stock traders join the ranks of sports figures and take testosterone as a performance enhancer?

Not quite. There is a point of diminishing returns; too much testosterone leads to too much aggression and reckless decision-making. In some, it may even lead to criminal behavior.


Cortisol, anxiety, and risk management

Cortisol is one of the stress hormones. It rises when stress levels are up, which is stating the obvious. But what is less apparent is its role in limiting risk. Let’s go back to the savannah for a minute. You spot a lion striding toward you. Being the testosterone macho that you are, you’d be perfectly willing to take the beast on. One guy, Samson, actually did it and lived to tell the tale, so why can’t you?

Fortunately, your eyes send the brain another message: Don’t kid yourself, this is dangerous! The order goes out to the adrenal glands and a flood of cortisol is released into the circulation, raising your anxiety level and making you have some second thoughts. After all, this is a tale from the Bible, and you know how believable those are; besides, this guy Samson, did anybody see him kill the lion? Maybe he was just using it as a line to get Delilah to do what Philistine girls do better than the Israelite ones? So you hedge your bets and climb up the closest tree. In other words, cortisol made you manage your risks more rationally.

Indeed, when the markets stopped going in one direction and started fluctuating, as markets always do, cortisol levels went up and trading became more restrained.

Of course, there is a downside to cortisol as well, especially when exposure to it is chronic.


The downside of cortisol

A recent Kaiser Permanente study showed an increased risk of dementia in males over 40 who had an increased central obesity, or abdominal girth, that is 35 inches in women and 40 inches in men. Even men with a normal BMI had a 2-fold increase in risk if their abdominal fat was excessive. Now, if you think that you are in great shape because your BMI is within the normal limits, and you proudly display your six-pack abs to anybody who would care to look, think again. Experts now think that subcutaneous fat—the flabby variety under the skin in areas like the buttocks, legs, and arms—while unfashionable, is fairly benign. Researchers at the Washington University School of Medicine in St. Louis demonstrated that when they removed an average of 22 pounds of subcutaneous fat via liposuction from 15 overweight women, they found no change in the women’s cholesterol levels, triglycerides, insulin sensitivity, or other health risks.

We are talking here about visceral fat or fat that underlies your awesome abs, lining your intestines and other internal organs. This fat in excess can be deadly. It is associated with the diseases of metabolic syndrome, but also with gallbladder disease, sleep apnea, numerous cancers, and dementia. So even if you are not flabby (you cannot pinch your skin and subcutaneous fat), but your belly is sticking out—you probably have excess visceral fat. A major factor in determining this deadly distribution of fat is cortisol. This is probably why people under chronic stress are more prone to all the diseases we just mentioned.

But wait, there is more. Cortisol also causes an increased risk of arthritis. It also leads to shrinkage of the prefrontal cortex and hippocampus, brain regions associated with decision-making and factual memory, meanwhile it contributes to growth in the amygdala, a region associated with emotional memory and anxiety. Not good stuff.


Some good news

Cortisol levels can be controlled by reducing stress levels. And visceral fat is the first to go when someone loses weight in general. Aerobic exercise, like walking or running, is particularly effective. Doing sit-ups, abdominal crunches, and Pilates can strengthen your abdominal muscles, and help hold your stomach in, but they won’t target visceral fat specifically.


And, some final thoughts on stock trading

Here are some questions that beg for a study.

  • Are women better traders because they are less prone to wild speculation?
  • Are stock traders more prone to heart disease and diabetes? Or more critically for their clients, are they likelier to become demented?
  • Should clients insist on a broker’s full disclosure of his health record?

Or maybe the answer is a lot simpler: Get a woman broker.