Gender in the workplace is a hot topic right now. There is a push for gender equality in everything from enrolling in STEM university degrees, to government positions, to leadership roles in business. There is also much research being done that is disproving stereotypes that certain skillsets or jobs are better suited to a specific gender. This has been done in areas such as medicine, law, and financial services. It is this last example that will be discussed in this post.
And to begin bluntly, women are better traders than men.
The trading website Fintrader outlined five possible reasons that support this finding.
It’s all in your head?
These reasons can be distilled down to bias and other psychological distortions in our perceptions that often result in overconfidence. It is this overconfidence that is viewed by the literature on this topic as the main culprit in trades that go wrong. This is not limited to the field of investment management, or to a specific gender. Humans in general are all susceptible to these pitfalls, which are unconscious and difficult to overcome. However, it was found that women are much less prone to overconfidence, especially in fields where there is a social preconceived notion that men are superior.
The 2001 article “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment” by Brad Barber and Terrance Odean, is the seminal piece when it comes to gender and finance. In it, Odean and Barber studied 35,000 accounts at a large discount brokerage company from 1991 to 1997. Their findings align with the list from Fintrader, that men are overconfident in their abilities and knowledge, and thus jump into bigger risks without looking at the big picture.
Overconfident investors believe more strongly in their own assessments of the markets than in those of other people, which leads to differences in opinion, which in turn causes trading.
Barber and Odean found that men trade 45% more frequently than women, which contributes to a 2.65% reduction in net returns per year. Therefore, it was determined that the less you trade, the more likely you are to do well.
But don’t forget about those hormones
The impact of hormones and emotions on social behaviour, including traders’ actions and choices, has been studied for years. And it shows that it is in fact men and not women who are most affected by hormones when trading. Despite this, women are still the focus of sexist jokes, still labelled as ‘hormonal’ or ‘overly emotional,’ and still believed to be irrational in stressful situations.
Modern financial economics assumes that we behave as rational beings, but this is hardly ever the case. We are in fact under the influence of psychological and biological factors. The fact that women respond differently – and according to the research, more favourably – to these factors should be taken into consideration when doing business in the financial sector.
Sources used for this post:
Are Women Better Traders Than Men? | FX Day Job. (2017). Fxdayjob.com. Retrieved 6 February 2017, from https://www.fxdayjob.com/are-women-better-traders
Barber, B. M., & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. The quarterly journal of economics, 116(1), 261-292.
Butcher, S. (2015). Data proves that women make far better traders than men. eFinancialCareers. Retrieved 7 February 2017, from http://news.efinancialcareers.com/ca-en/197066/exclusive-figures-show-women-make-far-better-traders-men/
McGrath, J. (2016). FACT: Women are better traders | The Trade. Thetradenews.com. Retrieved 7 February 2017, from http://www.thetradenews.com/Buy-side/FACT--Women-are-better-traders/
Sinclair, E. (2012). Why Women Make Better Traders Than Men. Business Insider. Retrieved 8 February 2017, from http://www.businessinsider.com/why-women-makes-better-traders-than-men-2012-11