On the Physiology of Investment Biases: The Role of Cortisol and Testosterone. Issue 3 (16th July 2021)

• Record Type: Journal Article
• Authors: Nofsinger, John R.; Patterson, Fernando M.; Shank, Corey A.
• Is Part Of: Journal of behavioral finance. Volume 22:Issue 3(2021)
• Page Start: 338
• Page End: 349
• Publication Date: 2021-07-16
• Subjects: Investment biases -- Disposition effect -- Testosterone -- Cortisol -- Dual-hormone hypothesis; C91 -- G02 -- G11; Capital market -- Psychological aspects -- Periodicals; Finance -- Psychological aspects -- Periodicals; 332.019
• DOI: 10.1080/15427560.2020.1775600
• Languages: English
• ISSNs: 1542-7560

Abstract

Abstract: The underlying physiological mechanisms of biases are not well understood. As such, we examine the impact of testosterone and cortisol levels on several commonplace investment biases using realistic trading simulations. Cortisol, the biological marker of stress, is positively related to the disposition effect and portfolio turnover, which is consistent with the relation between judgment errors and stress in social settings. Testosterone, the male hormone, is also positively related to portfolio turnover, which is consistent with androgen-driven behaviors. Overall, the results show that the endocrine system plays a significant role during financial decision-making, which has important consequences for the financial industry.