News

A Canadian researcher has found that the amount of testosterone men were exposed to in the womb affects how well they perform in financial trading jobs that require quick reaction times.

John Coates, a former Wall Street trader who grew up in Ottawa and is now a senior research fellow at the University of Cambridge in England, is investigating the role biology plays in financial risk-taking. Last year, he found that futures traders with higher morning testosterone levels made greater profits.

That made him wonder whether traders may also be affected by the testosterone that helped to shape their bodies before birth. This early exposure appears to make men more sensitive to the hormone as adults, Dr. Coates says.

But how to measure prenatal exposure? There is evidence higher levels of testosterone in utero leads to longer ring fingers (4D) compared with index fingers (2D), he says.

Perhaps that's because the development of both digits and gonads are governed by a common family of genes, he says. It is a ratio scientists call 2D:4D. Men typically have relatively longer ring fingers, or lower 2D:4D, than women.

Dr. Coates photocopied the right hands of high-frequency traders and measured the two fingers with calipers. The men with longer ring fingers compared with their index fingers made on average six times the profit during a 20-month period.

The findings, published this week in the journal Proceedings of the National Academy of Sciences, suggest that biological traits affect traders in ways that economic theory doesn't take into account, Dr. Coates says. In fact, the financial success of traders may depend more on those traits than on their ability to make rational choices, he and his colleagues say.

The length of the ring finger compared with the index finger is not something you can eyeball, Dr. Coates says, but you can measure it with a

ruler. It is easier if you photocopy the hand, and researchers usually compare fingers on the right hand.

But before you reach for the ruler, Dr. Coates says, it is important to remember that his study involved a group of traders whose jobs required a specific set of skills.

The 49 men recruited for the study were all high-frequency futures traders, work that requires high vigilance and quick reactions.

"If you watch these guys trade, it is like watching a tennis player at net," Dr. Coates says.

They all have screens with the assets they trade on them. Each has his own signals he is looking for. Maybe he thinks a certain security will spike upward temporarily to a certain price. Then he'll sell it. "It might get there for a split second, and they have to quickly hit the mouse [button] to sell at that level. If something else happens that proves them wrong, they have to buy it back before it goes higher," he says.

They spend the day scanning the screens, looking for anomalies, and hold their trades for minutes and sometimes only seconds. They have to act quickly because chances are a lot of other traders are looking at the same thing.

"It is a part of the market that is very short term. They don't have time to think, really, " Dr. Coates says.

The traders all practised the same style of trading and had equal access to capital and information. So their profits reflected their risk-taking skill, Dr. Coates says.

Other types of financial trading require other skills. In fact, he says, the traits that benefit high-frequency traders may prove a hindrance in positions involving more long-term investments.

"We should not conclude from this that to succeed in all types of trading you need high levels of prenatal testosterone. There are different market segments and trading styles, and each of these may select for different traits."

Other studies have found that in men, a relatively long ring finger is linked to ability in some sports, including soccer and skiing.

Researchers, however, aren't sure what factors influence the prenatal exposure to testosterone that results in longer ring fingers.

*****

Fingers of fate

Studies have found that during gestation, testosterone has powerful effects on the developing body and brain, and can cause increased confidence, risk preferences and search persistence, as well as heightened vigilance and quickened reaction times. The most common measure is the ratio of the index to ring finger (2D:4D) on the right hand. A relatively longer ring finger -lower 2D:4D - indicates higher prenatal testosterone levels.

Men typically have scores below 1, women above 1.

HOW TO MEASURE

1. Place right hand firmly on plate of photocopier with fingers straight. Close cover or place a sheet of paper over hand to prevent glare from overhead lights. Ensure that bottom crease and finger tip can be clearly seen in photocopy.

2. Use a ruler or calipers to measure the distance from the middle of the bottom crease to the tip of the finger.

3. Once you have the measures for both your ring and index finger, then divide the length of your index finger by the length of your ring finger.

The result is 2D:4D (2nd digit divided by 4th digit).

TRISH McALASTER / THE GLOBE AND MAIL

SOURCE: UNIVERSITY OF CAMBRIDGE