Note:  if you haven't already, please take one of our free online personality tests before reading on.  You'll be in good company, over 20,000 people have taken at least one of our tests. 

In our Trader Personality Test results we see that women traders do not differ substantially from men in terms of performance and volatility.  Professional traders - both men and women - must stay disciplined and with proper risk management in order to survive in the business.  Good discipline is a prerequisite to successful trading.

Among people who have taken our Investor's Personality Test, we see a different phenomenon - women vastly outperforming men.  Our Trader's and Investor's Personality Tests are differentiated by the average length of holding time for positions - in the case of investors, 3 months or longer.  For investor's we see that gender is the most powerful explanatory variable (after experience) in dictating market returns.

In this study we examined investors who took our Investor's Personality Test from 2005-2010.  After removing those with less than five years experience, from countries without developed financial markets, those who gave repetitive answers, and those beyond the age bounds 25-80 years old we had 2,600 results left.  Follow this link to take the test if you haven't already.  Nineteen percent (19%) of the final sample were women.   All test-takers had reported their  largest historical drawdown and their past five years investing returns.

Women reported much higher five year returns than men.  Further, women reported much lower average lifetime drawdowns.  Women risked less than men yet were more profitable according to these results.

In order to understand how women's profits were so much greater, we looked at gender differences in the individual bias questions in our tests.  In general women reported being more self-disciplined, grounded, and emotionally aware.

Men were more likely to report:

1. Vengeance:  Taking revenge on others. 
2. Overconfidence:  A higher rating of their own investing skills (unjustified by reported returns).
3. Cutting Winners Short:  Selling winning investments quickly (a.k.a., seeking pride),
4. Feeling Relaxed:  Men report experiencing less stress than women.

When you think about it, these responses could be a bit problematic.  Bringing ego into investing by taking revenge on markets or other traders or seeking pride through successful trading leads is far from the rational analysis preferred by successful investors.

To be clear about the limitations of the simple study we did, there is "self-report" bias in our sample, in which people rate themselves based on their opinions.  Based on cultural and perhaps competitive pressures, men are more likely to exaggerate their risk tolerance.  This study shows that women do take less investment risk than men.  At the same time women also underreport their risk tolerance.  To look into others' research on gender-specific investing behavior, we turn to a classic study.

Our performance results - showing men outperforming women - are congruent with those reported by Brad Barber and Terry Odean at the University of California at Berkeley.   In a study of 35,000 brokerage accounts between 1991 and 1997.  The authors found that women had 45% less portfolio turnover and 1.4% greater average annual returns versus male investors.   To be clear, both men and women underperformed the stock index, but men underperformed more.

John Coates, whose work we profiled last week, cites evidence that women change their risk taking to be more like that of men when given testosterone.  Coates speculates that bringing more women onto the trading floor may improve returns:

[T]here are grounds for thinking that women may be less 'hormonally reactive' when it comes to financial risk-taking. For example, women have only 5-10% of the circulating levels of testosterone of men, and they have not been exposed to the same organizing effects of pre-natal androgens. Furthermore, some studies have found that women's HPA axes are less reactive to stressors stemming from a competitive situation (Stroud et al. 2002). Their greater presence in the ranks of money managers may therefore help dampen hormonal swings in the market.  (Coates, 2010)

In a blog post, Brad Barber (co-author of the study above) indicates that women tend to be more focused on planning and wealth preservation while men are more competitive and focused on growing capital.

As in the above, there are general conclusions to be drawn from research about female traders and investors, but as we dive deeper into the specifics of how men and women are affected by their biology and how they perform in leadership groups, the plot thickens.

This material is not intended as and does not constitute an offer to sell any securities or a solicitation of any offer to purchase any securities. 

The information of the MarketPsych Report is presented free of charge.  It is no substitute for the services of a professional investment advisor.  Investments recommended may not be appropriate for all investors.  Recommendations are made without consideration of your financial sophistication, financial situation, investing time horizon, or risk tolerance.  Readers are urged to consult with their own independent financial advisers with respect to any investment.

Past performance is no guarantee of future results.  Screen and model signals and related analysis are for informational purposes only and should not be construed as an offer to sell or the solicitation of an offer to buy securities.  Most financial instruments (stocks, bonds, funds) carry risk to principal and are not insured by the government.  Anyone using this newsletter for investment purposes does so at his or her own risk.

Data accuracy cannot be guaranteed.  Opinions and analyses included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. We are not liable for any errors or inaccuracies, regardless of cause, or for the lack of timeliness of, or for any delay or interruptions in, the transmission thereof to the users.

As a matter of policy, we may act upon the investment information that this newsletter provides prior to making it available to the public.  We do not accept compensation of any kind from any companies mentioned herein.

MarketPsych is not responsible for any special, indirect, incidental, or consequential damages that may result from the use of, or the inability to use, the Information contained on this newsletter whether the Information is provided or otherwise supplied by MarketPsych or anyone else. Notwithstanding the foregoing, in no event shall MarketPsych total liability to you for any and all claims, damages, losses, and causes of action (whether in contract or tort or otherwise) exceed the amount paid by you, if any, for accessing this newsletter.

MarketPsych expressly disclaims all warranties and conditions with regard to the Web sites, their Content, and the Information, including, without limitation, all implied warranties and conditions of merchantability, fitness for a particular purpose, title, and non-infringement. By using the Web site, Content, and Information, I assume all of the risks associated with their use, and I release and agree to indemnify and hold harmless MarketPsych from any and all liability, claims for damages, and losses arising from or connected with such risks.

IF YOU DO NOT AGREE WITH ANY OF THESE TERMS AND CONDITIONS OR FIND ANY OF THEM TO BE UNACCEPTABLE, SIMPLY UNSUBSCRIBE FROM THE EMAIL LIST. If you understand and accept these caveats, feel free to read the newsletter.