Hormones may perpetuate volatility in the market

Sunaina Rana / Emirates Business

‘In his paper titled ‘Cortisol shifts financial risk preferences’, Guest-Lecturer of Organisational Behaviour at London Business School, Ben Hardy and his co-authors examine the
relationship between hormones and financial uncertainty to find that volatility affects
cortisol levels in individuals, causing
higher stress.
Sharing his opinion on gender diversity in a work environment, Ben Hardy told Emirates Business, “Our research found that the levels of cortisol are elevated by uncertainties like volatility in the market. As a result, both men and women take much less risk. But the research also found that men overreact to small pieces of information whereas women do not. This could perpetuate volatility in the market. Having a mix of gender in the work environment could be one way of achieving more stability and maximising effectiveness.”
“Like other diversity metrics, gender diversity improves the quality and creativity of decisions. Having people who think different from you improves the quality of your decisions,” he added. In periods of high volatility when uncertainty is greater, cortisol levels tend to rise, thus affecting an individual’s propensity to take risks, and actually making them risk-averse. The paper has been co-authored by Narayan Kandasamy, Lionel Page, Markus Schaffner, Johann Graggaber, Andrew S. Powlson, Paul C. Fletcher, Mark Gurnell and John Coates.
“People who are different can tap into different networks and understand the same things differently. For example, when Volvo were designing the hugely successful XC90 they had a female design team who were able to produce something different and more appealing to the market,” said Hardy.
He added, “The Credit Suisse Research Institute undertook research looking at the share price of 2400 companies in 46 countries. What they found was that having women on the board made no particular difference in times of economic growth (2005-2007). But in times of turbulence (2008-2011) companies with at least one woman on the board outperformed all-male boards by 26%.”
Talking about male dominance in the financial world, Hardy said, “It seems likely, however, that the absence of women may lead to less stable markets. Our research found that when the levels of cortisol, a stress hormone, are elevated by, for example, volatility in the market, then both men and women take much less risk. Men, however, also overreact to small pieces of information whereas women do not. So men may perpetuate the volatility in the market. There is also some evidence from other studies to suggest that a mix of genders produces more stable markets. So whatever the reasons that there aren’t as many women in the financial markets, there are good reasons to correct this.”