An academic study found that City traders with longer ring fingers made up to 11 times more money than their digitally-challenged colleagues. But this is no statistical quirk – longer ring fingers are a telltale sign of higher testosterone levels, which are known to increase confidence, encourage risk-taking and decrease reaction times. The team of scientists, led by former Wall Street broker Dr John Coates, found that this was a huge advantage for traders (just as it is for sportsmen), allowing them to outperform their peer group over the period of the test. But if anything, this may well show the flaw in the system...
Coates’ study was focused on so-called ‘high-frequency’ (or ‘noise’) trading, in which traders are forced to take huge positions for very short periods of time – rarely more than minutes, and often just seconds. It’s the fastest-moving segment of the trading world, in which operators have hardly any time to make decisions with huge financial implications. So it’s no place for shrinking violets. And according to a study of 44 male City traders, an individual’s success is directly correlated to his testosterone level: on average, those with longer ring fingers made six times the profits of their less well-endowed counterparts, and also lasted much longer in the industry.
So does this mean that banks need to rely on finger length in their recruitment process (or ‘estimates of prenatal androgens’, as the scientists catchily prefer to call it)? Well, not necessarily. Coates reckons it’s a bit like picking tennis players based on height: ‘Height gives an advantage in serve speed and reach at net,’ he writes in today’s FT. ‘But a coach selecting players on this basis would miss a Jimmy Connors, who is a slight 5ft 9ins yet has won eight Grand Slam titles.’ In other words, it’s not the whole story.
Then there’s the question of whether it’s a good idea for us to encourage a trading set-up where this kind of testosterone-fuelled behaviour is exorbitantly rewarded. Coates points out that these same traits make traders less effective for investments with a longer holding period – which in turn increase the chances of banks investing in securities that perform very well in the short term but prove toxic in the long term. Ring any bells? He reckons it may be time for traders to be compensated over a full business cycle, so ‘prudence’ and a ‘long-term view’ would prevail.
But if nothing else, this study should give the rest of us some sympathy for the overweening traders that have laid low some venerable institutions in the last year. By the sounds of it, at least part of their problem is genetic...
In today's bulletin:
Mandelson launches £20bn finance scheme for SMEs
Mervyn Davies steps up as Citigroup becomes bitty group
JJB chaos as sales slump and Ronnie left red-faced
Goldfingers: the men with the Midas touch
SME's glass really is half-full