Why We Need More Female Traders On Wall Street

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The resignation of JPMorgan Chase exec Ina Drew in the wake of the banking giant’s recent $2 billion trading loss is troubling news for many reasons, but one of the most important rarely gets mentioned: Trading operations need more women, not fewer. There’s good reason to think women are much better-suited for the business than men.

The 55-year-old Drew’s resignation is more than anything a case of her falling on a sword for her role as a manager rather than as a trader. But in her day Drew was said to be one of the most skilled female traders on Wall Street — which, sadly, isn’t saying much. In the financial services industry, which remains remarkably inhospitable to womentrading in particular remains a testosterone-fueled subculture, one that could use a considered and ongoing rejiggering of the gender balance. This is not solely because we’re living in the 21st century and these kinds of hiring/staffing biases (intentional or not) are wrong and possibly illegal, but also because we’d likely avoid many of these kinds of trading debacles if more women were making the decisions. This is not idle feminist speculation. It’s the only conclusion you can draw from what remains the seminal research on the topic: Boys Will Be Boys: Gender, Overconfidence and Commons Stock Investment.

For their 2001 study, the distinguished behavioral economists Terrence Odean and Brad Barber analyzed account data for more 35,000 households at a large discount brokerage, looking at the common stock investments of men and women from February 1991 through January 1997. Their top-line discoveries: Men on average traded 45% more frequently than women, and that hyperactive trading reduced their net returns by 2.65 percentage points a year, compared to 1.72 percentage points for women. Put another way: Men were on average worse stock traders than women.

(MORE: The Real Reason Women Don’t Help Other Women At Work)

To be sure, individual investors, the majority of whom we can presume to be amateurs, are not ripe for apple-to-apple comparisons with professional traders. But, if anything, the advantage in such a comparison would likely go to the folks at home. Why? To quote, Odean and Barber:

“We believe there is a simple and powerful explanation for high levels of trading on financial markets: overconfidence.”

That is, the more that people overestimate their ability, knowledge and future prospects (what behavioral economists mean when they use the term “overconfidence”) the more likely those people are to take action based on their beliefs. Men, who have been shown in studies to be more confident than women when it comes to financial matters, are therefore more likely to trade—and more likely to hurt themselves.

One can only imagine that professional traders are, um, slightly more confident than the average home trader.

It’s important to keep in mind, however, that a relative lack of confidence about financial matters does not actually mean that women are less knowledgable about the subject, or less able to succeed in the business of pushing it around chaotically. (There are studies other than Odean and Barber’s to suggest the opposite is true.) Mostly, it means they’re more likely to be thoughtful, which is hardly a bad thing, even at high speeds. Almost 20 years ago to the day I wrote a cover story for Money magazine with the cover line, “Why Women Can Be Smarter Than Men About Money.” The story detailed the five ways women, by their nature, tend to outperform men when the playing field is otherwise level:

1. They’re quicker to admit ignorance.

2. They’re more likely to seek help and advice from others.

3. They’re better at specific goal-setting.

4. They do more “homework.”

5. They’re generally more cautious about risk.

That last trait, apparently, is especially underrepresented at JPMorgan Chase.

But an increase in all five qualities on his trading desk most likely sounds pretty good to Jamie Dimon right about now.

(MORE: Shut Up and Pay Up, Please: The Tax Whiners Don’t Know How Good They Have It)

1 comments
DavidAuCoin
DavidAuCoin

the above blog is another example of men bashing their own gender. There doesn't seem to be any shortage of men these days rushing to media to announce the inferiority of their own gender. You would think such men would be ashamed of the fact that they are inferior instead of making sure everyone knows it. This is the type of article that serves no worthwhile purpose. How does this article help men? If true than all our traders aught to be women. Aren't men already falling behind women in employment? It is men these days that need a little encouragement  His blog if taken seriously would eliminate men from trading because since women are better at trading we should as a society want only female traders.

But Gary in his haste to degrade his own gender makes a couple of glaring miscalulations or mistakes. He states "The 55-year-old Drew’s resignation is more than anything a case of her falling on a sword for her role as a manager rather than as a trader. " Here he attempst to exsonerate Drew and make a hero out of her. Truth is managers who manage a company that  looses as much as JPMorgan Chase  did are suspose to take the hit. If Drew had been a man it is doubtful that Gary would write about how he fell on the sword. He seems to be a little too eager to blame his own gender which seems t to be the trend these days.

Notice also how Gary states that if we had more female traders we would avoid so many trading debacles. He fails to realize that having more female traders might not have reduced the number of these trading debacles at all because having more females would have increased the methematical possibility that more of these debacles would have been made by women in much the same way that girls dominate boys in soap box derbies.Why? Because 83% of the contestant are now girls thus increaseing the mathemetical probability of girls being the winners. This is also true of why China and the u.S. dominate the oliypics because both countries have a larger pool of talent. True also the likihood of men commiting more acts of imorality in politics is far greater than for women simply because there are far more males in politics. Thus males not doing as well as women might not be because men aren't as good but might well be because there are so many more male traders than females thus increasing the liklihood of more debacles being committed by males.

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