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The Stock Market on Hormones

New research suggests too much cortisol and testosterone are bad for the economy.
(Photo: Ahmad Nawawi/Flickr)

(Photo: Ahmad Nawawi/Flickr)

Those crazy kids and their raging hormones, always getting themselves into trouble—reckless driving, excessive drinking, petty theft, to name just a few examples. Now, we can safely add "destabilizing financial markets" to the list of hazardous hormonal side effects. According to new experiments, cortisol and testosterone can land stock traders in trouble just as easily as they can lead teenagers down the primrose path.

We all know hormones affect how we think and act, and wild teenagers are just one of their many victims. In recent years, a small group of researchers has been looking at how hormones might affect economic decisions, including the kind traders make every day: whether to buy or sell a stock. Results have indicated that cortisol, a hormone related to stress, and testosterone can have marked effects on stock traders' behavior, not to mention their profits.

Those who took the hydrocortisone pill invested about 70 percent more money in the high-risk stock.

These studies inspired an international team of economists and neuroscientists, led by Carlos Cueva and R. Edward Roberts, to wonder whether fiddling with hormones might have a more serious effect on the stock market as a whole. In the first of two experiments, 142 people bought and sold a dividend-paying stock over 15 rounds of trading, all while the researchers monitored testosterone and cortisol levels in their saliva. Cortisol levels, the team found, were a good indicator of trading activity and stock price volatility; higher levels were associated with both higher trading volumes and greater variability in the stock's price, though that was only true in men. For women, cortisol's effects were less clear, as were the effects of testosterone on both men and women.

But this raises the question of whether cortisol actually increased market volatility, or was merely correlated with it. To find out, the team needed a second test, to actually manipulate cortisone levels. After swallowing 100-milligram hydrocortisone pills or placebos, 34 young men looked at two stocks, one riskier than the other, and chose how much of 10 pounds (the study was conducted in the United Kingdom) total to invest in each stock. Compared with the placebo group, those who took the hydrocortisone pill invested about 70 percent more money in the high-risk stock—around 1.8 pounds, versus 1.1—while both groups invested the same amount in the low-risk stock. A separate test with testosterone in place of cortisol revealed similar results.

Though it's hard to say what laboratory experiments imply about real-world markets, the team writes today in Scientific Reports, the results suggest a need to take physiology into account when thinking about the economy. "Overall, our work suggests that stability in financial markets might be improved by considering how social, environmental and procedural factors such as the release of important financial information may impact the hormone levels of traders participating in those markets," the researchers write, "and therefore could be of benefit to policymakers intent on developing more efficient institutions."

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