Women Are Better Traders Than Men

Women are better traders than men because they are less over-confident. It is also possible that they benefit from superior abilities to predict and explain the behaviour of others.

There is a good amount of evidence that female non-professional traders outperform male non-professional traders.  I discuss this at greater length in the final chapter of my new book:

The Psychology Of Successful Trading

This evidence is not widely discussed or known I believe.  It should have a wider audience.

I do not mean to imply that female professional traders under-perform male professional traders.  I have not seen a lot of data one way or the other on that point, though apparently there are some indications the female-run hedge funds also outperform.

There are a few interesting reasons as for why this might be.  One is that females are better at “Theory of Mind” than males.  Theory of Mind is the label for how we predict and explain the behaviour of others.  One would expect then that since much of market out-performance is driven by predicting the behaviour of other market participants, that strong Theory of Mind would be possessed by better traders.  And this indeed is what the data show.  Since I don’t believe that anyone has explained Theory of Mind to traders, I also devote an early chapter of the book to that topic.

The other interesting possibility relates to confidence.  There is a curse of over-confidence that afflicts at least non-professional traders.  They fall in love with their own judgment.  But it is only a fickle love.  In three months, they will be in love with a new idea and a new stock.  This makes traders commit the cardinal error of over-trading.  It is well-known that “buy-and-hold” outperforms as a style over the long term.  The fact is though that many retail trading accounts turn over several times in the course of a year.

It turns out that females are not less over-confident than males in one sense: they also form beliefs which they assert as confidently.  However, it seems that female traders are less likely to act on these beliefs.  So they are protected by this from letting their over-confidence lure them into over-trading.

This is just one account of the data.  I cover more in the book.  If you are interested in Theory of Mind, you could also take a look at my first book:

Simulation Theory

Feel free to comment below.  You won’t have to login.

Author: Tim Short

I went to Imperial College in 1988 for a BSc(hons) in Physics. I then went back to my hometown, Bristol, for a PhD in Particle Physics. This was written in 1992 on the ZEUS experiment which was located at the HERA accelerator in Hamburg (http://discovery.ucl.ac.uk/1354624/). I spent the next four years as a post-doc in Hamburg. I learned German and developed a fondness for the language and people. I spent a couple of years doing technical sales for a US computer company in Ireland. In 1997, I returned to London to become an investment banker, joining the legendary Principal Finance Group at Nomura. After a spell at Paribas, I moved to Credit Suisse First Boston. I specialized in securitization, leading over €9bn of transactions. My interest in philosophy began in 2006, when I read David Chalmers's "The Conscious Mind." My reaction, apart from fascination, was "he has to be wrong, but I can't see why"! I then became an undergraduate in Philosophy at UCL in 2007. In 2010, I was admitted to graduate school, also at UCL. I wrote my Master's on the topic of "Nietzsche on Memory" (http://discovery.ucl.ac.uk/1421265/). Also during this time, I published a popular article on Sherlock Holmes (http://discovery.ucl.ac.uk/1430371/2/194-1429-1-PB.pdf). I then began work on the Simulation Theory account of Theory of Mind. This led to my second PhD on philosophical aspects of that topic; this was awarded by UCL in March 2016 (http://discovery.ucl.ac.uk/1475972/ -- currently embargoed for copyright reasons). The psychological version of this work formed my book "Simulation Theory". My second book, "The Psychology Of Successful Trading: Behavioural Strategies For Profitability" is in production at Taylor and Francis and will be published in December 2017. It will discuss how cognitive biases affect investment decisions and how knowing this can make us better traders by understanding ourselves and other market participants more fully. I am currently drafting my third book, wherein I will return to more purely academic philosophical psychology, on "Theory of Mind in Abnormal Psychology." Education: I have five degrees, two in physics and three in philosophy. Areas of Research / Professional Expertise: Particle physics, Monte Carlo simulation, Nietzsche (especially psychological topics), phenomenology, Theory of Mind, Simulation Theory Personal Interests: I am a bit of an opera fanatic and I often attend wine tastings. I follow current affairs, especially in their economic aspect. I started as a beginner at the London Piano Institute in August 2015 and passed Grade Three in May 2018!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s