Pre-natal androgens and risk taking...

Coates and Page follow up on a study I mentioned in an earlier post, this time examining risk taking as well as long-term profitability of traders in the City of London exchange:

Traders in the financial world are assessed by the amount of money they make and, increasingly, by the amount of money they make per unit of risk taken, a measure known as the Sharpe Ratio. Little is known about the average Sharpe Ratio among traders, but the Efficient Market Hypothesis suggests that traders, like asset managers, should not outperform the broad market. Here we report the findings of a study conducted in the City of London which shows that a population of experienced traders attain Sharpe Ratios significantly higher than the broad market. To explain this anomaly we examine a surrogate marker of prenatal androgen exposure, the second-to-fourth finger length ratio (2D:4D), which has previously been identified as predicting a trader's long term profitability. We find that it predicts the amount of risk taken by traders but not their Sharpe Ratios. We do, however, find that the traders' Sharpe Ratios increase markedly with the number of years they have traded, a result suggesting that learning plays a role in increasing the returns of traders. Our findings present anomalous data for the Efficient Markets Hypothesis.