Whenever there’s a stock market bubble that’s created and the inevitable burst that follows, causing a crash, people are always looking for someone to blame. Politicians and CEOs get a lot of the heat for these crashes, but recent studies say that it might actually be something as simple as testosterone that’s been to blame for a volatile stock market.


Three universities joined forces to participate in a study wanted to see if the primarily male hormone could cause some poor decision making. These universities took 140 male day traders, following them around during 17 trading sessions. All of the participants were either given added testosterone, or a placebo, all in the form of a gel. The participants were then asked to buy and sell assets, seeing who could make the most money.


What the researchers found was that those who were given the pure testosterone were more likely to have aggressive trading habits than those that received the placebo. The authors said that those on the placebo were more likely to “buy low to sell high” while those with the testosterone boost were more likely to “buy high to sell higher.” When that happens, the stock market is more likely to have a bubble with stock prices soaring unnaturally, leading to the eventual crash.

Amos Nadler was one of the authors of the study, and he says that “This research suggests the need to consider hormonal influences on decision-making in professional settings, because biological factors can exacerbate capital risk. Perhaps the simplest recommendation is to implement ‘cool down’ periods to interrupt exceptionally positive feedback cycles and return the focus to assets’ fundamental valuations to reduce the possibility of biased decision-making.”


Nadler continued by saying “Based on our findings, professional traders, investment advisories, and hedge funds should limit the risk taken by young male traders. This is the first study to have shown that testosterone changes the way the brain calculates value and returns in the stock market and therefore – testosterone’s neurological influence will cause traders to make suboptimal decisions unless systems prevent them from occurring.”

It shouldn’t come as too much of a surprise that high levels of testosterone can lead to aggressive decision making according to past studies. Ze’ev Shtudiner of the Department of Economics and Business Administration at Ariel University says that 90 percent of stock traders are men, and high testosterone changes behavior. “Such an effect may lead male traders, driven by an increase in testosterone due to a successful investment, to take exaggerated risks, which, in turn, creates price bubbles,” he said.

Shtudiner added that “By increasing the number of women traders in financial markets, it may be possible to stabilize these markets since women have less dramatic shifts in testosterone levels, which can make them less prone to the momentum effect.” A study by Carlos Cueva and other researchers noted that “Testosterone has been found to both predict success rates and confidence in competitive encounters with levels increasing in response to victories or challenging situations, thought to be part of a positive feedback loop termed the ‘winner effect.’”


The study also noted that “Testosterone has also been closely linked with perceived social status. In men, elevated levels of testosterone have been associated with increased aggression, secual function and moon. Thus, the evidence would seem to indicate that either hormone (along with cortisol) could play a role in modulating individual preferences for risk taking and market instability, particularly when participating in an arena as stressful and competitive as a modern financial market.”


Nadler and his team concluded their study by saying that “we show that exogenously increasing testosterone in men increases bid prices and asset price bubbles, and slows the incorporation of fundamental values. We also demonstrate how the changes in buying and selling pressures give rise to bubbles and subsequent crashes…Closer examination of gender differences in financial trading would improve our understanding, however, this area is difficult to study empirically because of the paucity of female traders. Pursuantly, women have significantly lower levels and lower variance of testosterone than men and are less likely to experience the same behavioral effects from the hormone.”

Some argue that the bulk of day traders are actually computer systems rather than shouting men on the floor, but the study looked solely at these types of traders. Not everyone is buying the conclusion of the study, but researchers say it’s hard to deny the link between the increase in testosterone and aggressive decisions. In competitive markets like the stock exchange, it has a way of bringing out large swings in testosterone.