On the Physiology of Investment Biases: The Role of Cortisol and Testosterone

30 Pages Posted: 26 Mar 2020

See all articles by John R. Nofsinger

John R. Nofsinger

University of Alaska Anchorage

Fernando Patterson

North Carolina Central University (NCCU)

Corey A. Shank

Miami University

Date Written: February 29, 2020

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, that has important consequences for the financial industry.

Keywords: Investment Biases, Disposition Effect, Testosterone, Cortisol, Dual-Hormone Hypothesis

JEL Classification: C91, G02, G11

Suggested Citation

Nofsinger, John R. and Patterson, Fernando and Shank, Corey, On the Physiology of Investment Biases: The Role of Cortisol and Testosterone (February 29, 2020). Available at SSRN: https://ssrn.com/abstract=3546687 or http://dx.doi.org/10.2139/ssrn.3546687

John R. Nofsinger

University of Alaska Anchorage ( email )

3211 Providence Drive
Anchorage, AK 99508
United States

HOME PAGE: http://faculty.cbpp.uaa.alaska.edu/jnofsinger/

Fernando Patterson

North Carolina Central University (NCCU) ( email )

Durham, NC 27707
United States

Corey Shank (Contact Author)

Miami University ( email )

Oxford, OH 45056
United States

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