Risk Aversion In Gun-Shy Traders May Lead To Market Crises
Tuesday, February 18, 2014 - 06:20
in Psychology & Sociology
Does cortisol, the stress hormone, cause risk aversion and 'irrational pessimism' in bankers and fund managers during financial crises? The authors of a paper in Proceedings of the National Academy of Sciences correlate the fact that traders exhibit risk averse behavior during periods of extreme market volatility – when a crashing market most needs them to take risks, according to academics not responsible for billions of dollars of someone else's money – and that this change in their appetite for risk may be "physiologically-driven", specifically by the body's response to cortisol. They suggest that stress could be an "under-appreciated" cause of market instability. read more