Thursday, October 1, 2009
Hormones Versus Bonuses
Women and middle-aged men might make better traders than testorone-fueled younger men, says an article in this week's Securities Industry News. It seems the presence of too much of the male hormone leads to excessive risk-taking on the trading floor. John Coates, a research fellow at the University of Cambridge, has done a couple of studies on the subject. Coates tells Securities Industry News that having more women on the trading floor might limit market swings, as women tend to be more risk averse. (I am not so sure that being risk averse makes a good trader, though. I am pretty risk-averse and can honestly say that I am one of the worst traders I know.) I wonder if Coates and others (the MBA students at U. Chicago and Northwestern are also looking at the role testerone plays in business) have looked at the correlation between bonuses and risk taking. Because even the most risk-averse, hormone-lite woman or middle-aged man might just make a major punt in the market if they thought they could take home a multi-million dollar bonus. However, the news that the UK is going to curtail bonuses along G20 guidelines might bode well for women and older men getting trading jobs. Today's Financial Times says that these guidelines require that a "substantial portion... such as 40-60%" of bonuses be paid over a three year period or more. This may appeal more to risk-averse traders than to the testerone-rich crowd.