Hotshot Wall Street traders are often depicted as high-energy, aggressive men that are willing to take risks to survive in a dog-eat-dog environment.
But as it turns out, testosterone may not be every trader’s best friend, according to a new study conducted by the University of Central Florida and Singapore Management University.
For the study, researchers measured the facial width-to-height ratio (fWHR) — a feature that has been linked to high testosterone levels in adults — of 3,228 male hedge fund managers from 1,901 investment firms.
Scientists have found that hedge fund managers with wider faces, a proxy for testosterone levels, are more likely to produce lower returns, take risks and even commit fraud. Pictured is Leonadro DiCaprio in the film ‘Wolf of Wall Street’, which tells the story of a fraudulent trader
They discovered that male hedge fund managers with a wider face — a proxy for testosterone levels — underperform those with a lower facial width-to-height ratio by 5.8% each year.
This contrasts with the images often portrayed in popular culture that glorify the bullish behavior of investment bankers, traders and hedge fund managers.
Think of billionaire corporate raider Gordon Gekko in ‘Wall Street’ or rogue trader Jordan Belfort in the ‘Wolf of Wall Street’.
Not only are these managers more likely to produce lower returns, but they’re also more likely to get fired, commit fraud and make risky investment decisions.
The researchers said the results produced important findings for investors, as $3.3 trillion of assets are managed by the hedge fund industry.
Traditionally, testosterone has been noted for its many benefits.
Pictured is Michael Douglas as Gordon Gekko in the 1987 movie ‘Wall Street’. The movie glorified the behavior of risky traders but researchers found high testosterone levels can sometimes lead to committing fraud, making risky investment decisions and losing money
It produces lower incidences of heart attacks and stroke, results in increased muscle mass and strength, greater mineral density, better sexual performance and can improve mood, according to the researchers.
But for hedge fund managers, it may enable some bad behaviors.
‘Testosterone can lead people to make irrational risk-reward tradeoffs,’ the study notes.
‘The aggression, risk-seeking and egocentrism associated with testosterone could induce investment managers to engage in sub-optimal trading behavior such as trading excessively, purchasing lottery-like stocks and holding onto loser stocks’.
Testosterone-fueled traders may be less likely to admit mistakes or defeat, the study continues.
It may also lead to greater ‘operational risk’.
The scientists say male hedge fund managers with a wider face — a proxy for testosterone levels — underperform those with a lower facial width-to-height ratio by 5.8% each year
ARE MEN WITH SHORT AND WIDE FACES MORE LIKELY TO CHEAT?
Researchers from Nipissing University in Canada looked at how different facial features affect sexual behaviours.
The study involved 314 undergraduate students who were in romantic relationships.
Each student completed a questionnaire about their behaviour, sex drive, sexual orientation, the chances they’d consider cheating, and how comfortable they were with the concept of casual sex.
The researchers also took a picture of each student to analyse their facial width-to-height ratios (FWHR).
Scientists have found that men and women with short and wide faces are more sexually motivated and likely to cheat than people with faces of other dimensions. Pictured is footballer, Wayne Rooney, who has previously cheated on his wife, Coleen
The results showed that men and women with a high FWHR – square and wide faces – reported a greater sex drive than others.
Men with a larger FWHR were also more easy-going when it comes to casual sex and would consider being unfaithful to their partners.
The researchers hope the findings will shed light on the role that facial features play in sexual relationships and mate selection.
Their research builds upon previous studies that have shown that certain psychological and behavioural traits are associated with particular facial width-to-height ratios (FWHR).
Square-faced men tend to be perceived as more aggressive, more dominant, more unethical, and more attractive as short-term sexual partners than men with thinner and longer faces.
‘These results suggest that high-testosterone managers may be more predisposed to fraud,’ the researchers said.
Experts suggest that hedge fund traders consider employing women and older men who are known to have diminished testosterone in their bodies, according to the Economist.
Alternatively, they could think about using trading algorithms that can’t be influenced by emotion at all.
But it seems that high-testosterone hedge fund managers aren’t dominating the industry completely on their own accord.
The researchers said that high-testosterone investors may prefer these kinds of managers because they remind them of their own behaviors.
‘The aggressive trading style of high-testosterone hedge funds may appeal to high-testosterone investors as it mirrors their own,’ the study concluded.