The Effect of Gender on Investors’ Judgements and Decision Making

Abstract

We examine whether an unsophisticated investor’s own gender interacts with gender of a sell-
side equity analyst to affect the investor’s judgment. Prior research shows two potential sources of gender-based discrimination that affect female investors. First, female investors’ advisors offer less risky hence lower return portfolios to female investors than to male investors with similar risk preferences as female investors are perceived as more risk-averse. Second, female equity analysts are subject to greater barriers to enter and advance in investment firms that act as if they believe clients prefer male advisors as investing is a male-stereotypical occupation. Using two experiments, we use the judge-advisor framework to predict and find that investor’s gender and analyst’s gender jointly influence investor’s judgment. Specifically, female-female analyst-investor pair generates the strongest reaction to analyst’s advice compared to any other analyst-investor pair, everything else equal. Further, we find that efforts to highlight equal gender performance activate gender stereotypes that reduce female investors’ receptivity to female analysts’ advice. By linking these two previously different sources of discrimination we show that they reinforce each other and find that attempts to “level the playing field” by emphasizing gender performance parity may have unexpected results.

Keywords: Analyst, investor judgment, analyst reports, risk aversion, advice, gender stereotype, ingroup favoritism

JEL Classification: D63, D81, D83, J24, J70, J71 M14, M41