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 women, trading 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.
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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.
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