Stock market crashes can be caused by too much testosterone, according to new research.
A study by the University of Western Ontario has shown that men took more financial risks when they were given supplements of the male sex hormone.
The study, which entitled ‘The Bull of Wall Street’ used experimental stock markets with some 140 male participants.
The participants were put into groups of ‘traders’ and given skin patches that contained either testosterone or a placebo gel.
They then took part in 17 sessions that allowed traders to buy, sell, bid and offer money for shares of stock – with the testosterone users often changing the perception of a stock’s worth, despite knowing its precise value.
In turn, this created a bubble – referring to the scenario when an individual push the demand of a stock far beyond its actual worth before it eventually ‘pops’, causing a market crash.
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Describing the study, Professor Amos Nadler, of the Ivey Business School at the University of Western Ontario, said: ‘The study shows exogenously increasing testosterone in men increases bid prices and asset price bubbles, and slows the incorporation of fundamental value.
‘The results showed the causal effects of testosterone on financial asset mispricing.
‘By administering testosterone to traders before they trade financial assets for real money, testosterone directly increases the size and persistence of stock market bubbles.
‘Testosterone drove these changes in market dynamics by increasing bidding, selling prices, and volume and changed traders’ perception of a stock’s current value even though true values were known during trading.’
He added: ‘It turns out testosterone may be responsible for some of the dramatic bubbles and crashes we have seen since.’
Studies have previously shown that too much testosterone is prone to making men act without thinking – with research by Imperial College London previously suggesting that it may behind the 2008 financial crash.