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.

three women smiling while sitting on stairs
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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.

woman wearing pink collared half sleeved top
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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.

See Also:

What Is “Theory Of Mind?”

The Psychology of Successful Trading: see clip below of me explaining my new book!

Simulation Theory: A psychological and philosophical consideration

Jacob Rees Mogg Is Wrong To Say That Loss of Passporting Will Not Be A Problem For The City