Who survives best in the tough, dog-eat-dog, fast-paced world of
financial markets? "Efficiency-skills" market theorists tell us that only the
rational, unemotional, stress-resilient survive, but traders need more than a
calculating mind. They must also possess confidence, an appetite for risk, skill
in visual scanning and quick reactions.

What about other demanding situations were we need to perform at our best? What
about courtship, marriage and other domestic and business
situations?

New research from Cambridge University indicates that financial market survival
traits may derive in part from a trader's prenatal exposure to steroid hormones.

Testosterone levels surge between the ninth and 18th week of gestation, exerting
powerful organising effects on the developing body and brain. These levels,
researchers believe, can be estimated because they leave tell-tale traces on the
adult body, some of them odd, like auto-acoustic emissions (strange sonar-like
clicks
in the inner ear) or fingerprint asymmetry. Estimates of prenatal
androgens are often used by paediatricians to gauge whether a newborn
has been exposed to abnormal levels of steroid. The most convenient
is the ratio of the index to the ring finger (2D:4D, where "D" stands
for digit), a lower ratio – ie a longer fourth finger – indicating
higher prenatal testosterone. Men typically have lower ratios than
women.

In "Fingered: the clues to success lie in the womb"
http://www.ft.com/cms/s/0/6c933c86-e0af-11dd-b0e8-000077b07658.html
John Coates writes...

"Heightened levels of testosterone are known to increase confidence,
risk-taking, vigilance and reaction times; 2D:4D has been found to
predict adult success in competitive sports. I wondered, having
worked on Wall Street, if 2D:4D might also predict trading skill.
Consequently I and two colleagues, Mark Gurnell and Aldo Rustichini,
analysed 2D:4D from male traders engaged in what is variously called
noise or high-frequency trading. These traders take large "trading
positions" - up to $2bn at a time! - but hold them for only a few
minutes, sometimes mere seconds. They make quick decisions and have
little time for doubt or researched analysis."

"High-frequency traders inhabit a brutal segment of the market, one
made more unforgiving because of the proliferation of black boxes –
computerised trading programmes designed to process a trade in less
than 50 milliseconds. In this fast-moving world androgenic traits
seem to confer an advantage, for we found that traders with a high
measure of prenatal androgens made on average six times the profits
of traders with a low measure and lasted in the business several
years longer."

"Does our research herald a dystopian future in which hiring on Wall
Street is decided by the presence of a bio-marker? It is unlikely.
The advantages of 2D:4D can be compared, for example, to height in
tennis: height gives an advantage in serve speed and reach at net but
a coach selecting players on this basis would miss a Jimmy Connors,
who is a slight 5ft 9ins yet has won eight Grand Slam titles.
Similarly, there are many attributes besides 2D:4D that contribute to
trading success, such as education and ability to collaborate.
Equally important is the quality of traders' training and risk
management."

"The androgenic traits that benefit short-term trading may also prove
a hindrance in types of trading requiring a longer holding period.
For example, men tend to overtrade their investment accounts, causing
them to underperform women. Furthermore, men appear to use more
heuristics ["rules of thumb", educated guesses, intuitive judgments] -
cognitive short-cuts, which help in rapid transactions; while women
seem to prefer more complete information. The markets need both
approaches but problems arise when short-term trading extends into
banking and asset management, where reports emerge of a growing
generational divide between the older, more patient managers and the
younger ones, eager for quick profits. When this happens banks are in
danger of positioning securities that perform well in the short term
but later prove toxic [the seeds of the sub-prime mortgage crisis]."

"Whether short or long-term decision-making dominates a market
depends on which type of risk-taking the banks reward. Markets are
not governed by immutable laws, as is nature, but by compensation
schemes and banking regulations. If you change these rules you change
the type of trader that succeeds. Change the type of trader making up
a market and you change its level of instability. John Maynard Keynes
thought volatility could be reduced by making a security transaction,
like a marriage contract, a long-term commitment. Similarly, if
trader compensation were determined over a full business cycle,
instead of yearly as it is now, the markets would select for traders
who exercised prudence and took a long-term view of a security's
value."

In "Top traders hold key to success in their hands"
http://www.ft.com/cms/s/0/d15e5a18-e0d9-11dd-b0e8-000077b07658.html
Clive Cookson writes...

"Researchers at Cambridge university have found a strong statistical
link between the profitability of male traders at a London bank and
the ratio of index to ring fingers on their right hand. The longer
the fourth digit in relation to the second, the more money the
traders are likely to make."

"Previous research has shown that higher prenatal exposure to
testosterone and other male hormones leads to a lower 2D:4D ratio.
Finger ratios have been used to predict performance in competitive
sports."

"Traders with the lowest 2D:4D ratios had an average annual income of
£680,000 – 11 times higher than those with the highest ratios. The
ratios, measured from photocopies of volunteers' hands, ranged from
0.90 to 1.02."

"Last year, the same Cambridge researchers reported the results of a
different experiment in which they found that traders with the
highest levels of testosterone in their body during the morning went
on to make the most profit during the day."


"Population statistics give average effects over a population but can
be tricky when applied to individuals. The next stage in the
Cambridge research will be to look at other types of financial
trading. "When it comes to long-run investments, we may well find
that successful individuals have higher, more feminine digit ratios,"
he said."


Well, it seems to me that this is another potent argument in favour
of "teamworking" - surely the best all-round solution, using teams
with diverse character traits.

The research we really need, not only for efficient city trading, but
also for marriage and other partnerships, is on how to stop the quite diverse
team/partnership-members from driving each other crazy!!