Why Women Make Better Money Managers

Posted by Dr. Michael White, Updated on September 14th, 2023
Reading Time: 4 minutes

Female money managers consistently outperform their male counterparts, according to a recent study.

Blame it on testosterone!

Men's perception of greater power in the workplace, due to higher testosterone levels, is why women outpace them when it comes to investment returns, researchers say.

Female money managers consistently outperform their male counterparts, and social scientists say this unbalanced power dynamic is one reason why. But, they add that eventually, as the power balance evens out in the workplace, women may lose some of that edge.

Men's higher testosterone levels lead them to trade more and take riskier positions. "Men can become a little immune to some of the signals in this market," said Meredith Jones, a director at consulting firm Rothstein Kass. "Having more women in risk-tasking positions can help mitigate some irrational exuberance."

The Science Behind Testosterone's Role in Financial Behavior

In a simple study conducted by John Coates, saliva samples were taken from 17 male traders on eight consecutive days. These samples were analyzed for the testosterone levels of each man, and Coates found that high testosterone levels were correlated with the trader making more than his one-month daily average. Also, when testosterone levels were high in the morning, that day's profits were higher than usual.

Coates compares this correlation and male behavior with animals, such as fighting bucks. Both experience a euphoric feeling when they win – male humans, high profits, male deer, winning a fight – and both experience the “winner's effect.” Once they win, they will want to keep fighting and keep winning, which can be addictive, and will continue until they inevitably lose.

Therefore, particularly for young male investors with peak testosterone levels, they will continue to try and win, becoming less rational and more stubborn, not following their more careful strategy as before or thinking decisions through.

A firm called Financial Skills conducted a study with 700 summer trading interns and found that women were much less likely to “transgress specified trading limits” than men. It seems that testosterone causes men to take more risks, possibly getting higher investment returns, but in the long-run, careful planning may be the better method here.

Biological Differences in Testosterone Levels

As most people know, women have less testosterone than men. Typically, women have only 10% of the testosterone than their male peers. Stephan Hamann noted in his paper on sex differences that “the brain regions that differ in size between men and women also tend to be the same regions that contain high concentrations of sex hormone receptors...” One example is the amygdala, a small area of the brain that perceives threats and aggression, which is larger in men than women.

It seems that hormones can have a significant role in cognition and behavioral differences in men and women. Having less testosterone does not expose women to the “winner's effect” as much as with men.

This leaves women less likely to engage in reckless behavior and being overconfident about their decisions or arrogant about their choices.

In a study from 2001, researchers Robert A. Olsen and Constance M. Cox discovered that “women investors weight risk attributes, such as the probability of loss and ambiguity, more heavily than their male colleagues. Also, women tend to emphasize risk reduction more than men in portfolio construction.”

Jones is the author of a study that found since 2007, female-owned or female-managed hedge funds delivered returns more than six percentage points higher than hedge funds overall, and two percentage points higher than the S&P 500.

This type of research needs to continue to get more definite answers about testosterone and behavioral differences between men and women in regards to financial decisions.

But what we've discovered so far points to the fact that testosterone is a key player here and tends to make men take more risks, with potentially higher short-term rewards, whereas women tend to “play it safe” and may come out with higher long-term rewards. Exciting stuff to say the least!

If you are interested in learning more about testosterone replacement therapy (TRT) or natural ways to boost your testosterone levels, feel free to contact us using our contact form or via telephone. One of our patient coordinators will be happy to speak with you!

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