How hormones impact the stock trading floor

The stock floor is stressful enough: money flying in and out of hands, companies’ prices rising and falling and the nation watching and waiting to see what the stock market may have to say about the economy. Add in hormones, and the stock trading floor can become a whole different situation.

Researchers from Cambridge University studied male floor traders in the London stock market over the course of eight days of work to see how stress hormones can affect decision making in such situations.

Their findings were published in the 2008 version of Proceedings of the National Academy of Science.

Some key findings of the study, led by John Coates and Joe Herbert of Cambridge University, showed a spike in cortisol levels at an interesting point.

Cortisol (also known as hydrocortisone or the stress hormone) is released in response to fear or stress by the adrenal glands as part of the fight-or-flight mechanism. Research from scientists have shown that elevated cortisol levels can interfere with learning and memory, lower immune function and bone density, increase weight gain and blood pressure—among other things.

In the study, cortisol levels shot up when there was market volatility.

That’s where a new study from Cambridge University comes in (which was also published in the Proceedings of the National Academy of Science). Coates and his colleagues wanted to know what elevated levels of cortisol did to decision-making for traders.

Volunteers were administered levels of cortisol that were somewhat within the same stress range as those observed in Coates’ previous studies; volunteers were then asked to play a financial risk-taking game.

Similar to the 2008 study, one-time administration of cortisol did not affect volunteers, but by the end of the eight-day exposure period, volunteers’ behaviors began to change. By the end of the experiment, volunteers “preferred low expected returns and lower-variance bets. In other words, they became more averse to risk,” according to a recent Wall Street Journal article.

Volunteers were tested on the first and last day of the treatment through saliva and blood samples and a heart rate monitor. Some volunteers were dosed with hydrocortisone, while others were given a placebo, with doses based on their weight.

The Wall Street Journal article continues: “Studies have shown that stress and cortisol make humans and lab animals more preservative in this way.”

Psychiatric websites point to the danger of long-term stress on the body, including a higher risk of cardiovascular disease and hypertension, as well as a greater susceptibility to infections, allergies and autoimmune diseases. Long-term stress can also contribute to a variety of skin problems, muscular pains, diabetes and infertility.

Coates’ study concludes by pointing out the relevance the findings have on economics and the financial world, saying that “if cortisol responds powerfully to increases in uncertainty and volatility, and volatility rises most strongly during financial crisis, then risk taking may decrease just when the economy needs it most.”

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