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Cortisol and testosterone increase financial risk taking and may destabilize markets -#AnirudhSethi

  
Analysis, Education
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Why is cortisol known as the stress hormone?Financial risk-taking is a term that is thrown around quite often in the world of finance. But what does it really mean? Cortisol and testosterone are two hormones that have been shown to increase financial risk-taking, according to recent studies. Cortisol may increase financial risk by making people more sensitive to rewards and less sensitive to losses or punishments. Testosterone, on the other hand, has been found to make people more confident about their decisions when they take risks – essentially giving them an irrational sense of invincibility after they’ve taken a calculated gamble with potential long-term consequences. As these hormones are released into our body for various reasons (e.g., stress), they can lead us down the path towards increased volatility in markets which can have significant consequences for the rest of us.Testosterone — What It Does And Doesn't Do - Harvard Health

##Cortisol, testosterone increase financial risk-taking:

Cortisol and testosterone levels affect the way we take risks. Cortisol increases financial risk-taking while testosterone tends to decrease it. When cortisol is in excess, people are more likely to make risky decisions that may lead them into debt or bankruptcy. Men with high levels of both hormones were more apt to engage in reckless behavior than those who had low amounts of either hormone

When cortisol is high people make risky decisions that may lead them into debt or bankruptcy. Men with high levels of both chemicals increased their investment by 40%. Cortisone (cortisol) relative to his level of testosterone, the greater chance he will take big chances with money. Cortizone (cortisol) is released in response to any type of physical or emotional disturbance, while testosterone is secreted after intense moments such as winning a sports game.

Testosterone decreases financial risk-taking. Cortizone (cortisol) relative to his level of testosterone, the greater chance he will take big chances with money. Cortizone (cortisol) is released in response to any type of physical or emotional distress, whereas testosterone is secreted after intense moments like winning a sport’s game.

##The more stress we feel in our daily lives, the higher our level of cortisol and testosterone will be as well: (more…)

Testosterone and Cortisol in Trading for Traders – Anirudh Sethi

  
Analysis, Education
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Books and films often dramatize financial-market traders as macho gamblers. Now there may be scientific evidence to back up differently as two researchers have linked testosterone levels to the success of traders in one London market while another researcher has linked testosterone and cortisol able to increase financial risk and may destabilize markets.

According to researchers stressful and competitive working environments could be increasing hormone levels and having an impact on decision-making. Experts agreed it was important to know how hormones affected traders.

Both cortisol and testosterone occur naturally in the body. The levels of cortisol do increase when we experience psychological or physical stress. This causes the blood sugar levels to rise and prepares the body for a “fight or flight” response.

The hormones testosterone and cortisol may reflect different stress triggers.

Changes in hormone levels may affect success in the financial markets.

As soon as we sense danger, our body will release adrenaline and cortisol. The adrenaline increases our blood pressure and heart rate and boosts our energy supplies, whereas cortisol has a different job.

Cortisol is also known as the stress hormone. It is a steroid hormone made in the cortex of the adrenal glands, which is released into the blood and transported all over the body. This release in our body leads to our senses being heightened and our heart rate rising. It primes us for our ‘fight or flight’ state to help us survive and get away from danger.

Cortisol is very good for the body in terms of the benefits it provides, unless you have too much of it. Our body is set to react to danger, release cortisol and adrenaline, before calming down once the danger is gone. But, if you are constantly in a state of stress, the cortisol is going to

stay being produced in your body and that’s when it can cause problems.

Nearly every cell has receptors for cortisol and this can cause different reactions taking place. When our body is preparing for fight or flight, there are functions that aren’t needed at that point in time, which means other important systems shut down. Our immune system, digestive system and reproductive system all start to shut down. These reactions are great if you’re just needing that fight or flight mode to escape a predator, but not so good if you spend all day being stressed-out about your trades.

One other issue is that you will be more susceptible to getting ill, while your immune system is

down. It goes without saying that if you’re recovering in bed, you’re not going to be trading (more…)

"Men's Hormone Levels Might Affect Financial Markets"

  
  Education
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Hormones can affect the body and mind in a number of ways, and now it turns out that they may even have an impact on men’s financial risk taking.

A new study published today in Scientific Reports suggests that alterations in the levels of cortisol and testosterone in male market traders may predict risk taking and price instability, at least in lab experiments designed to resemble real-world financial markets.

The researchers conducted two experiments. First, 142 men and women played an asset-trading game in groups of about 10 people each. The game mimicked some of the characteristics of real-world financial markets, in which multiple participants trade stocks as buyers and sellers, and the behavior of each trader is affected by the behavior of other traders. The researchers measured naturally-occurring levels of cortisol and testosterone in saliva samples taken from the people in the study. They found that, in men, high levels of cortisol were linked to increased trading activity as well as the likelihood of mispricing and overall price instability.

In the second experiment, the researchers administered cortisol to 34 men ages 18 to 30, and testosterone to 41 men in the same age group before the men played the asset-trading game. The participants in both groups were also given placebo in a different stage of the experiment so that the researchers could compare hypothetical effects of both hormones on risk-taking behavior with placebo. The investigators found that the men in the study were more likely to invest in riskier assets after receiving either of the two hormones than they were after receiving placebo. (more…)

Stress hormone linked to financial crisis

  
  Education
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STRESS TRADINGThe stress that financial traders suffer during periods of high volatility in the markets reduces their appetite for risk, according to a study led by Cambridge university neuroscientist and former Wall Street trader John Coates. This may prolong financial crises.

The research, published in Proceedings of the National Academy of Sciences, combines field and lab work. Prof Coates and colleagues discovered that levels of the stress hormone cortisol increased by 68 per cent on average in a group of City of London traders over eight days in which market volatility increased.

 The scientists took this finding to Addenbrooke’s Hospital in Cambridge where they used pharmacology – hydrocortisone tablets – to raise cortisol levels in volunteers, also by 68 per cent over eight days. Participants then played an incentivised risk-taking game. The appetite for risk collapsed, by as much as 44 per cent according to one measure, in those with raised cortisol. (The study was double-blinded with a control group taking dummy tablets.) (more…)

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