Is male traders' overconfidence responsible for market bubbles?

Research shows more women traders equals smaller and fewer blow-ups

By Liz Skinner

Feb 18, 2015 @ 12:24 pm EST

New social science research has exposed what may be the cause of the high level of volatility in U.S. equity and other markets so far this year, and it isn't low oil prices, Greece's economic woes or the weak conditions in Europe and Japan. Men are the culprit.

More specifically, male-dominated markets, according to research published in the February 2015 journal American Economic Review.

Researchers found that all-female markets generated smaller “bubbles,” in which asset prices rose substantially above fundamental values and then crashed, compared with market sessions conducted with all male participants.

The market sessions were conducted in a lab setting where nine “traders” bought and sold 18 assets, according to the article by Catherine Eckel and Sascha Fullbrunn, “Thar SHE Blows? Gender, Competition, and Bubbles in Experimental Asset Markets.”

The study also looked at the impact of having a mixed group of male and female traders. It concluded that an increase in the number of women in the markets led to smaller bubbles, the article said.

“The results imply that financial markets might indeed operate differently if women operated them,” Ms. Eckel and Ms. Fullbrunn said.

See: Jack Bogle: 5 growing dangers to investors

Some have blamed men's “competitive nature and overconfidence” for the collapse of the housing market in 2008, the authors wrote, noting that only about 10% of Wall Street traders are women.

“Our data suggest that increasing the proportion of women traders might have a dampening effect on the likelihood and magnitude of bubbles,” the article concludes.

Their research also showed women's price forecasts were significantly lower than the male traders'.

The study suggests smaller bubbles occurred in market sessions that included more traders who were risk averse and larger bubbles when sessions contained traders who were more competitive.

However, neither of these traits could be statistically pegged to women versus men traders, the article said.

(More: The Journey's Goal: More women on Corporate Boards)

Join the Discussion

Most Popular

Affluence Influencers