Surging Testosterone Levels May Cause Market Bubbles

Trading floor

Too much testosterone? Scott Beale/Flickr CC BY-NC-ND 2.0


It is often seen in sports that a team goes on a “winning streak” or get “in the zone” and go from strength to strength. Known as psychological momentum, there is a lot of debate about whether or not the phenomenon can genuinely change the outcome of games or is just a shift in confidence.

Now, a new study, published in the Journal of Economic Behavior & Organization, suggests that psychological momentum is influenced by levels of testosterone, and as such affects men more than women. As the financial markets are largely dominated by men, the researchers believe this could have major implications for business.


Market bubbles, which are often caused by people taking inflated risks, could be driven by a form of psychological momentum, which itself is altered by testosterone. As such, they suggest that the financial industry hire more women to stabalize the market. 

“Such an effect may lead male traders, driven by an increase in testosterone due to a successful investment, to take exaggerated risks, which, in turn, create price bubbles,” explains co-author Dr Ze’ev Shtudiner of Ariel University, Israel, in a statement.

To look into how psychological momentum might be impacted by testosterone levels, the researchers didn’t head to the trading floor but to the dojo instead. They specifically looked at bronze medal fights between 2009 and 2013 to see whether male and female judo fighters who had won their previous fights were more likely to succeed at competitions.

“Our results showed that based on a cross-section analysis of 106 men's and 111 women's fights from eight major annual judo events, having a psychological momentum advantage significantly increases the winning probability in men's contests but not in women's,” says Dr Alex Krumer, another of the researchers. The authors suggest that this can translate to other situations, such as market traders.


With over 90 percent of market traders being men, the researchers say that psychological momentum may affect this environment, and potentially see its effects in market bubbles. There is, the researchers argue, a solution to this to minimize the chance that the financial markets will experience bubbles that eventually pop.

“By increasing the number of women in financial markets, it may be possible to stabilize these markets since women have less dramatic shifts in testosterone levels, which can make them less prone to the momentum effect,” explains Dr Shtudiner. “This argument is consistent with our results that momentum effects are generated only among men, since it is only among them that testosterone levels increase after success.”


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