Stock Market Success May Stem from Prenatal Hormone Levels

by Scott P. Edwards

March, 2009

Digit ratio—the length of one’s ring finger in relation to one’s index finger—may predict accomplishment in the highly competitive world of financial trading because testosterone levels in the brain underlie both, a study suggests. A British researcher has found that male traders whose ring fingers are longer than their index fingers make more money—six times more, on average—than other traders.

Published January 13 in the Proceedings of the National Academy of Sciences, the study, conducted by University of Cambridge neuroscientist John Coates, suggests that biological traits may have as much or more to do with a trader’s success than do either experience or the ability to make rational choices. Men whose ring fingers are longer than their index fingers are exposed to greater amounts of testosterone in the womb, which may improve their rapid decision making skills

Until recently, scientists believed that hormones such as testosterone and estrogen primarily influenced sexual differentiation and reproductive biology. Coates’ study—and others—is turning that thinking on its head, with a better understanding of how these hormones influence a wide range of human behaviors.

Prenatal hormones have important organizing effects on brain development and future behavior. Hormones secreted early in fetal development help to organize brain circuits, as well as affect physical characteristics such as digit length, says Russell Romeo, a neuroscientist at Barnard College who studies the effects of hormones, particularly stress hormones, on the brain. Later in life, other hormones, such as those secreted during puberty, can activate these previously organized circuits, he adds.

“At first blush, these findings seem fanciful,” Romeo says. “The stronger point, however, is that digit ratio predicts an individual’s hormonal history and hormonal changes as they get older. Hormones can indeed affect behavior, and sometimes quite substantially.”

During his days as a Wall Street trader in the 1990s, Coates became interested in how hormones affect traders’ behavior. Observing traders during the dot-com bubble, Coates thought that a chemical in the traders’ brains was causing them to make irrational financial decisions. Because most traders were male, he suspected that testosterone might be involved. A subsequent study of male traders found that, on the days they made more money, their testosterone levels were higher and they were thus more likely to take risks.

“Traders are succeeding not so much because they are rational, but because they have certain biological traits, including confidence, an appetite for risk, search persistence, and speed of reactions,” all of which are derived from prenatal exposure to testosterone, says Coates.

In his study, Coates examined the digit ratio of 44 male “high frequency” traders in London who buy and sell securities, sometimes in amounts greater than $1 billion, but hold their positions for minutes, sometimes only seconds. He found that traders with a longer ring finger than index finger made more money.

“We were on the trading floor taking samples for another experiment, and I read an article about digit ratio and sports,” says Coates. “I didn’t put too much stock in the measure, but we thought, ‘Why not look at fingers?’ We were shocked by the results.”

Exposure to high levels of testosterone before birth appears to make men more sensitive to the hormone as adults. In addition to playing a role in sexual functioning, testosterone has been associated with aggressive behavior and enhanced risk taking, and has been shown to predict performance in certain competitive sports.

Coates’ findings are consistent with a Harvard study of testosterone and financial risk taking that appeared in the November 2008 issue of Evolution and Human Behavior. Using an investment game, the Harvard researchers found that higher testosterone levels correlate with financial risk-taking behavior.

“Research on digit ratios in relation to a number of behavioral and psychological traits has exploded in the past 10 years, but many of the findings have not been as convincing [as Coates’],” Coren Apicella, lead author of the Harvard study, said in an e-mail. “Further study of biological markers and their relation to economic attributes will ultimately lead to a more comprehensive understanding of economic science.”