MUELLER: Women, Wall Street and financial crises

September 12, 2009

Although women now make up 60 percent of the work force, they occupy only 20 percent of executive positions. There are even fewer in finance, especially the high-risk areas like hedge funds.

This may be one important reason we are in our economic chaos. Women were not a significant part of the investment decision-making process. If they had been, females could have added their complementary decision-making skills to males to create more balanced decisions that could lessen or prevent financial disasters.

This is why: He says “go”; she says “no.” In other words, on average, men are more willing to take risks than women. A large body of work supports this point of view. For example, in 1997, two researchers from Great Britain’s The University of Leeds School of Business & Economic Studies showed that males are more risk-seeking than females irrespective of familiarity and framing, costs or ambiguity. In 2008, two Cambridge University researchers demonstrated that high testosterone may be responsible for risk-taking when trading stock options. One of the Cambridge authors followed this up in the April 15, 2008, Financial Times asking, “Would a greater presence of women and older men in the market help stabilize them?”

If the sexes were to work together, male risk-taking tendencies would be balanced by female caution. This should lead to better financial results. If a stock loses 50 percent of its value, it decreases from $100 per share to $50, but to return to 100, it has to gain 100 percent of its value.

This is where women managers would be expected to shine—by diminishing the chance the stock would significantly drop in the first place. In other words, though the highs might be less dramatic with women cooperatively in charge with men, they also would be attenuated on the low side. Michel Ferray, a professor of management at Ceram Business School in France, has research that supports this concept. He showed that firms with a greater ratio of women in management fared better in share price during the current financial crisis than companies with fewer females.

Other evidence also suggests that, when males and females make investment decisions together, it strengthens the result. E. Brooke Harrington wrote in “Pop Finance: Investment Clubs and the New Investor Populism” in 2008 that mixed investment clubs make more money than those that are single-sex. Some German researchers demonstrated in 2007 that in a professional setting, female managers are more risk-averse and less extreme plus more consistent than male managers. They still glean the same risk-adjusted return. University of Michigan scholars showed in 2001 that diverse rather than homogenous groups are better at problem solving.

Scientific research shows us that diversification works in our investment portfolios. In spite of this, it hasn’t been practiced in investment management, either professional or personal. Both are dominated by males. It is possible that Wall Street would do better by making its strategy teams gender-neutral by adding more female investment specialists. The interaction of one sex with the other could lead to stronger investment decisions that could help lessen financial disasters and mean more money and less pain for all.•


Mueller is a neurologist, psychiatrist and former tenured associate professor at Indiana University. Now she is CEO of MyMoneyMD LLC, a local investment guidance firm.

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