Testosterone Predicts Higher Returns for Traders in London
Does T Improve ROI? It Did For 14 Out Of 17 Traders
Jeff Tang
July 11, 2023
Testosterone Predicts Higher Returns for Traders in London
High T Quote of the Day:
Hey y’all, today’s deep dive is a summary + highlights from a paper titled Endogenous steroids and financial risk taking on a London trading floor. At the end, I speculate on the The Million Dollar Question: Should You Increase T to Improve Your Financial Performance?
Table of Contents
Community Highlights: NYC T Party Recap
SF T Party
Deep Dive: Endogenous steroids and financial risk taking on a London trading floor
Subjects
Method
Results
Limitations
The Million Dollar Question: Should You Increase T to Improve Your Financial Performance?
3 High T Links
Community Highlights: NYC T Party Recap
Last Saturday we had our second T Party (zeroth in Ecuador, first in Colombia).
Overall, it was pretty bad. The original venue cancelled mid-week, so I switched it to my coliving space’s rooftop. The ice bath didn’t show up on time and it was hot as f*ck. The bagel place shorted us on salmon. My talk wasn’t good.
T PARTY NYC ✅
- 10 guys tested 🩸
- sleep tech founder jason pulling up with an @ouraring@WHOOP and apple watch ultra
- convos on health, biohacking, and some impromptu coachingshoutout to @getinstalab and @nolimits for the labs 💉
DM us your city if you want a T Party!
— T Party (@tparty__)
Jul 8, 2023
It was in stark contrast to the Colombia T Party, which had a great venue, food, and talk. Still, all good lessons to learn, and very fixable for next time. Thanks to everyone who came!
SF T Party
Now that I did a great job of selling the NYC T Party, who’s excited for an SF T Party? I’m thinking 7/28. Reply if you wanna come and have ideas for a venue!
Deep Dive: Endogenous steroids and financial risk taking on a London trading floor
A paper published in 2007 by two University of Cambridge neuroscience professors found very interesting relationships between testosterone & cortisol and economic performance for London traders.
Higher testosterone measured in the morning predicted better P&L (profit and loss) performance and riskier trades for that day.
Cortisol was correlated with higher uncertainty in the market and in a trader’s results. Cortisol was not correlated with underperformance, as the researchers initially predicted, but volatility and uncertainty.
The authors were J. M. Coates and Joe Herbert, two University of Cambridge neuroscience professors. J. M. Coates himself previously traded on Wall Street for Goldman Sachs, Merrill Lynch, and Deutsche Bank.
Subjects
“With permission from the managers of a midsized trading floor (260 traders, of which 4 were female) in the City of London, we recruited 17 male traders to participate in the study.”
“The traders ranged in age from 18 to 38, with a mean of 27.6 years.”
“Annual income of traders on this floor, after broker commissions and profit sharing with the employing firm, ranged from £12,000 to over £5,000,000.”
“No subject smoked or was a vegetarian; no subject drank more than one or two cups of tea or coffee per day, and the few that did so consumed moderate amounts of caffeine regularly, a consumption pattern that has been found to leave cortisol levels largely unaffected (37). No subject used an inhaler; took synthetic steroids or medication for pain, stress, or depression; and none had gingivitis, a condition that can introduce blood into saliva.”
“Seven of the subjects were in their first year of trading, three in their second, and seven were more experienced.”
Mean, standard deviation, and range for the traders’ age, years trading, hormone levels, and income.
Method
“We followed these 17 traders for 8 consecutive business days, taking saliva samples twice per day, at 11:00 a.m. and 4:00 p.m.”
“At each sampling time, traders recorded their profit and loss (P&L), a number displayed live throughout the day on their computerized risk-management system.”
Results
“Using GEE, we found a significant correlation between 4:00 p.m. P&L and both 11:00 a.m. testosterone (95% CI 0.008– 0.021; P = 0.015) and 4:00 p.m. testosterone (95% CI 0.003–0.014; P=0.008).”
On days of higher testosterone, traders had higher economic returns.
“We took an average over the study of each trader’s daily cortisol and correlated this average with the standard deviation of his P&L: we found that the more volatile a trader’s P&L, the higher were both his average daily cortisol levels (r2 = 0.48, P = 0.004, n = 17; Fig. 3A) and the standard deviation of his daily cortisol levels (r2 = 0.40, P = 0.007; n = 17; Fig. 3B)”
P&L and cortisol were not correlated, but standard deviation of P&L was. Standard deviation is a measure of how much data is spread out.
“Because all traders had their largest exposure to the German markets, we used implied volatility from options on the Bund (10-year bond futures)… We found that daily group average cortisol levels did, in fact, correlate strongly with Bund implied volatility (r2 = 0.86, F = 38.1, P = 0.001. n = 11; Fig. 4)”
Upper line is the group’s average cortisol. Lower line is the implied volatility of German Bunds, a financial instrument. The solid bars represent how important each economic release is.
Limitations
Only sample size of 17.
Only males tested.
Only sampled over 8 days. We might observe altered cortisol levels in a trader who had fallen into a sustained losing streak.
“Conducted during what turned out to be a period of low volatility. Realized volatility on the Bund contract during the 2 weeks of the study was 3.45%, whereas the average for the previous 5 years was 4.75% [with a maximum of 11.76% reached in the late autumn of 2001, after September 11, 2001 (9/11), and a minimum of 1.73% reached earlier that same year].”
The Million Dollar Question: Should You Increase T to Improve Your Financial Performance?
On one hand: “When traders in our study experienced acutely raised testosterone, they made higher profits, perhaps because testosterone has been found to increase search persistence (20), appetite for risk (21), and fearlessness in the face of novelty (22, 23).”
On the other: “if testosterone continued to rise or became chronically elevated, it could begin to have the opposite effect on P&L and survival (24), because testosterone has also been found to lead to impulsivity and sensation seeking (25), to harmful risk taking (21), and, among users of anabolic steroids, to euphoria and mania (26).”
Ultimately, I do think it depends heavily on the profession. Joscha Bach speculates T would be helpful in sales (relationship and energy-driven), but less so in finance (rationality-driven). Finance is broad, however. And trading seems to be a unique intersection of rationality and risk (now this makes me want to test the T levels of chess players, poker players, and science/math olympiad people.)
I suspect that in finance, you need your brain to be predictable and free of impulsivity, whereas in sales, it does not hurt if you confront your customers with boundless confidence, energy and enthusiasm
— Joscha Bach (@Plinz)
Jul 4, 2023
If you are a programmer, consistent blocks of deep work and creativity are probably more important.
If you are a founder or CEO, it probably comes more down to your culture and context. Larry Ellison, Frank Slootman, and Elon Musk come to mind as as High T leaders creating High T cultures. That said, in a recession, every CEO must become a war-time CEO.
@sridatta also, while highly competitive/dominant is a stereotype of CEOs (e.g. Jobs, Gates, Ellison), it still depends on leadership style. there are other successful founder/CEO archetypes, especially in tech
corporate finance, law, & consulting stereotypically have more "alpha culture"… httptwitter.com/i/web/status/1…
— Jeff Tang (@tangjeff0)
Apr 28, 2023
Ultimately, we can only know if we do more tests. I like this paper because it uses measurable, real world performance data — P&L’s, option prices, saliva tests. One of the authors worked as a trader at Goldman and other top firms, and the tests were done on the trading floor. There are other studies that look at risk/performance and testosterone, but they tend to use contrived games in a made up setting.
So, if you know anyone working with a quantifiable feedback loop such as traders or salespeople, I’d love to chat! I’m currently negotiating with wholesalers to get better prices on T tests. Not sure how to quantify productivity for programers, but let me know if you know any “10x programmers” and maybe we’ll see.
Shout out to Ryan who is starting to plot his revenue vs T:
Got my first testosterone test, 593 ng/dl. Going to plot it against revenue.
Lower than expected bc I lift heavy, am in the sun, eat red meat, ice bath.
What simple things do you do to improve it?
— Ryan Doyle ☘️ (@Ryan___Doyle)
Jul 3, 2023
Stay High T Friends,
Big T out
3 High T Links
Newsletter: The State of American Men Report highlights by Mehdi Yacoubi, founder of Vital
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