Rich and Co.

Gender Differences in Pro Investing Results; Women Win!

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“Our findings, in general, are consistent with females making choices quite differently from males and utilising different areas of the brain based on ‘theory of the mind’ and pattern recognition that enables females to enjoy greater trading intuition.

“There’s some evidence that women have an unusual kind of sensitivity and are extremely sceptical of ‘pumped’ investments when prices are rising rapidly,” he adds.

“Women are far more likely to buy when prices have fallen, indicating greater scepticism and contrarian behaviour than males. Hence, men should make a special point of having their spouse review any choices the husbands make,” says Swan


investors are reluctant to invest in female-managed U.S. equity mutual funds but these flows are not driven by differences in past performance, or fund characteristics other than gender. Hence they put down these differences as evidence of prejudice.

our subjects, being individual traders, do not trade on a competitive trading floor but rather trade from home where females may be less at a disadvantage…Only recently has the conversation turned to whether there is a “gender advantage” in investing. While portfolio diversification is one of the major elements of investing, there has been no attempt to create diversity among those who manger money – either professionally or personally.

Thus the current study tests the hypothesis that female and male investors trading behaviour differs in an environment away from the trading floor, which is important for both academic researchers and practitioners alike.

To our best knowledge, the present study is the first to perform “apples with apples” comparisons over relevant time-periods without imposing mandated investors horizons that have limited or no applicability to these collectively male and female investors. This means we overcome the problem that two investor-type groups might have similar portfolio alphas based on factor models assuming a fixed investment horizon but in exceedingly volatile markets may earn entirely different realized trading profits due to one having better private market timing ability and information than the other. Since market timing is endogenous and reliant on both the incentives and
information base of the trader, any comparison of agent-type performance requires a performance measure that both recognizes and rewards stock-timing ability.

We study the relation between gender and stock trading performance using data on all trades by individual Finnish investors over 1995-2011. Following “holding-period-invariant” (HPI) portfolio approach – without imposing a heroic assumption that all individual investors rebalance their portfolio at specified intervals corresponding to an assumed horizon, we document:

– find evidence that females are superior traders, especially in the greater Helsinki region close to Nokia and other company headquarters.
– significant and remarkable gain made by female investors at the expense of male investors in trading major Finnish stocks,
– yielding an impressive internal rate of return of 21.44% p.a.
– female investors prefer to purchases under-priced stocks and sell overpriced stocks based on the trading signal that the difference between contemporaneous price and moving averages over short-term, 4-week to long-term, 1-year

Our findings are consistent with females tending to have better ability in the “theory of the mind”, and hence are better at recognising patterns in the data with superior trading intuition.

Our evidence suggests that it is possible to use the trading pattern of these smart female investors to anticipate market movements.

emphasize the differences in both knowledge and timing ability that are reflected in matched counterparty trades over extended time periods

80-90% of females will be responsible for their finances at some point in their lives…one recent study by Betermier, Calvet and Sodini (2015) concludes that male investors are more likely to invest in growth stocks whereas female investors prefer value investing. These baseline patterns are robust to control for the length of risky asset market participation and other measures of financial sophistication.

male investors trade more than female investors and higher wealth or income level is a positive driver within the male investors’ decisions in choosing Discount- Retail brokers. This could be evidence that risk taking increases with wealth and those male investors have more confidence in their own decision-making process when they make their investment decisions.
One might ask how it is it possible that, simultaneously, females outperform non-females and males outperform non-males inclusive of females? The answer is that institutional investors, together with “government” and other residual share categories, make up the majority counterparties to both females and males. Moreover, …households, irrespective of gender, outperformed both domestic and foreign institutions, here we show that both females and males, each considered as separate categories, outperform their institutional and all residual counterparts collectively. These are not only novel but also important findings as they indicate that the superior trading ability of females over males does not detract from the ability of males to outperform all institutional and residual category investors while females also continue to outperform all institutional and residual category investors consistent with their overall superiority. Focusing only on trades between different categories of counterparties, trading becomes a zero sum game in our analysis. Hence a negative return almost identical in magnitude7 applies to the counterparties.

As an indication that the long-term performance differences are not trivial, we find that female investors trading directly with male investors outperform by EUR 195 Million in just one stock alone (Nokia) over a 17-year period. This represents a remarkable internal rate of return (IRR) of 43.16% p.a. for female investors trading with male investors. Had female investors simply bought over the entire period with realization only at the end, the counterfactual “BuyOnly IRR” would have been exceedingly lower with a loss-making return of -13.04% p.a. This indicates the grossly misleading nature of “buy and hold” portfolio analyses that ignore the actual timing of trades. Furthermore, female investors also outperform non-female investors inclusive of institutional investors and other categories by EUR 1,407 Million, generating a similar IRR of 46.28% p.a., and male investors outperform non-male investors by a massive EUR 2,329 Million over the same period with a lower IRR of 43.76% pa that exceeds the household performance with the same counterparty.

how can we measure “TOM”

An extensive academic literature documents that gender matters in a number of different domains, including consumption, labor market, investment and corporate governance (e.g. compensation of top executives). In particular, recent finance literature has claimed that male and female investors differ in terms of risk aversion, overconfidence and mutual trust, with these dimensions impacting financial decision making and performance.
studies have documented that female investors seem to be more risk averse than male investors, hold less volatile portfolios, and expect lower returns.
Male investors invest more often and more aggressively than female investors when facing financial opportunities. Other argues that male investors are more overconfident than female investors…Self-reported less risk averse respondents and less experienced investors’ trade a great deal more…
Bose, Ladley and Li (2016) model testosterone differences within a trading model.
Recent research into the brain using experimental findings together with brain imaging has found an association between the “theory of the mind” and trader intuition, including the ability to detect informed traders in the crowd. “Theory of the mind” refers to an ability to read either benevolence or malevolence, e.g., the presence of an informed trading opponent, into patterns in one’s surroundings and is different from mathematical reasoning skills. Walker (2005) and the literature she cites finds that females, here 3-to 5-year old children, are more competent at theory of the mind tasks than are similar males. Rueckert and Naybar (2008) find that females perform better on a test for empathy than do males while pointing out that empathy is similar in concept to the “theory of the mind”…females utilise more emotion-related areas of the brain relative to males.

There is also a large literature on exposure to the male steroid hormone, testosterone, and a second hormone, cortisol, with both hormones associated with highly stressful and competitive environments such as trading floors. In experiments conducted on a large (550) cohort of University of Chicago MBAs Sapienza, Zingales, and Maestripieri (2009) find that higher prenatal exposure to testosterone and higher circulating testosterone are associated with less aversion to risk. MBA graduates high in testosterone and low in risk aversion were more likely to choose risky finance careers. Bos, Terburg, and van Honk (2010) find that testosterone significantly decreases trust amongst unfamiliar individuals and thus increases social vigilance which enhances preparation for very competitive environments such as the trading floor..naturally occurring cortisol predicts subsequent risk-taking and price instability in an experimental situation and that administered doses of both hormones shifts investments toward riskier assets.
Beyond the finance literature, previous studies from psychology indicate that females experience emotions more strongly than do males. The stronger emotional experience can affect the utility of a risk choice. In particular, female show more intense nervousness and fear than male in anticipation of negative outcomes.
If negative outcomes are experienced more severely by females than males, they will naturally be more risk averse when facing a risky situation. In identical situations…male and females who solve the same decision-making task involving a gambling task are different, with the males out-performing, because their brain mechanisms differ…female tend to feel fear while male tend to feel anger. They are more likely to be afraid of losing, relative to male and hence evaluate a given gamble as being more risky, and will act in a more risk-averse way.
female investors have a tendency to sell stocks on days in which their prices are greater than the average of past prices over the previous one-month to one year time-interval, respectively. Similarly, they purchase these stocks if the current prices are less than moving averages over time-interval from 4-week up to one-year. Hence, female investors’ behaviour reflects that they identify stock fundamental value by its past average stock price, but the fundamental value here is their “private fundamental value” rather than the more conventional definition. They have a belief that either under-priced or over-priced stocks will move back to their historical average due to mean reversion under the efficient market hypothesis. Either the short-term or the long-term moving average of past stock price provides a signal of fundamental value to female investors. The coefficients of 𝐿𝑎𝑔𝐷𝑖𝑓𝑃𝑟𝑖𝑐𝑒𝑀𝐴 are range from -225 to -89 from short-term to long-term moving average time window. That is, female investors prefer to estimate their own “fundamental value” based on the more recent stock price moving average.
Furthermore, if they are more risk-averse than male investors, they would not trade too much in anticipation of any existing mispricing opportunity in the market. While in general male investors may adopt a contrarian trading strategy for the same mispricing stock when trading with institutions, since females appear to be contrarian traders, their counterparty must, by definition, be positive feedback in nature.
Hence, we conclude that Finnish female investors overall appear to have better access to information than do either Helsinki male investors or non-Helsinki male investors. Since a more informed investor group will on average buy low and sell high, they will appear to be contrarian when that might not be their strategy at all
Here our hypothesis is female investors extract information from average stock price over different time-interval to identify mispricing opportunities in the market. We conclude that female investors prefer to buy underpriced stocks and sell overpriced stocks – compared with moving average prices.
Our findings indicate that female investors, who trade on fundamentals, receives a private signal that is extracted from past price movements and informs their current investment decisions. In matched trade portfolio between female investors directly trade with male investors, their net purchases occur when the contemporaneous price falls and vice versa. They also moderately anticipate a mispricing opportunity, such as the GFC period, rather than undertaking too much trading activity (buying or selling) and thus bearing more risk. Our findings are, in general, consistent with females making choices quite differently from males and utilizing different areas of the brain based on “theory of the mind” and pattern recognition that enables females to enjoy greater trading intuition.

“The Gender Face-Off: Do Females come out on Top in terms of Trading Performance?” Wei Lu, et al.


in threat detection, the connectivity results suggest that compared to women, men have a more evaluative, rather than purely affective, brain response during negative emotion processing.

women exhibited greater activation than men in the left amygdala and the medial prefrontal cortex, consistently with the notion that women display greater neural reactivity during negative emotions. These findings could be attributed to differences between men and women in sex steroid hormones and/or gender role socialization, as many studies report a link between emotional processing and testosterone, estrogen, progesterone and masculine/feminine traits

on top of the sex-differences in emotion-related brain activations, such as increased left amygdala activations in women, there are critical sex-differences in the functional connectivity between brain regions that have been shown to be commonly activated in both women and men (right amygdala, dmPFC) during process- ing, dmPFC) during processing of negative emotions

“Sex differences in effective fronto-limbic connectivity during negative emotion processing

O. Lungu et al. / Psychoneuroendocrinology 62 (2015) 180–188


Written by Rich and Co.

March 13, 2017 at 6:58 pm

Posted in Uncategorized

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