On the Physiology of Investment Biases: The Role of Cortisol and Testosterone
Nofsinger, J., Patterson, F., & Shank, C. (2020). On the Physiology of Investment Biases: The Role of Testosterone and Cortisol. Journal of Behavioral Finance. 22(3), 338-349.
30 Pages Posted: 26 Mar 2020 Last revised: 22 Mar 2023
Date Written: February 29, 2020
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.
Funding Information: None.
Declaration of Interests: None.
Ethics Approval Statement: Prior to conducting this study, Institutional Review Board (IRB) approval was obtained from the university’s Office of Research (Protocol Approval #IRB-13-003). INCOMPLETE
Keywords: Investment Biases, Disposition Effect, Testosterone, Cortisol, Dual-Hormone Hypothesis
JEL Classification: C91, G02, G11
Suggested Citation: Suggested Citation