Female traders are better at buying cheap and selling high. U.S. Embassy Kyiv Ukraine/Flickr, CC BY-ND
Female traders can be far more selective, as they spend more time evaluating before making a trade and have a calmer approach in financial storms. Previous research shows women trade less than men, but does not reveal why. Our analysis shows this greater delay between trades is there for a good reason.
I worked with researchers Joakim Westerholm and Wei Lu to look at every trade women undertook in 28 major Finnish stocks usually most heavily traded by men. We chose Finland because it has by far the best data inclusive of gender and trader location. Although the population is small, we observe almost a million traders. The trades took place over a 17 year period, from 1995 to 2011.
Normally, when conducting research like this, one might identify a trade made by a male. If the price rises in the next day, week, or month, that trade is supposedly successful, even if he sold that stock two years later at one half the price he paid for it. Since his counterparty, the person who sold him the stock, is unknown, they could be either male or female. Using this kind of research it is impossible to say which gender is better.
But in our research we could track every one of the traders, and even identify where they lived or moved to. This is because Finland assigns a lifetime identity to every investor: institution and household (by gender within the household), such that every individual’s portfolio and every trade is fully identified on every day. We know that male traders took the other side of the trades we were studying.
Ideally, traders try and sell when the price is high, even better when the price is unjustifiably high. But these opportunities do not arise every day and not all traders are equipped to detect them. For example, in Finland, females waited until 1998 to increase the rate at which they sold Nokia stock to men. Around that time, Nokia had not increased in price by 10%, or even 100%, but by 5,000% (yes, 50 times) due to pressure from US institutional investors.
Similarly, in 2007-08, when Nokia once again boomed following it’s collapse in 2002, the rate at which female investors sold to men increased again. Their pessimism was justified as this boom preceded the global financial crisis collapse.
Although male trading activity increasingly dominated female trading activity over the 17 years we studied, female trades were more successful. Female traders managed an annual internal rate of return of 43% on their Nokia holdings, and 21.4% across the 28 stocks. The males, meanwhile, had correspondingly high losses - negative returns of -43% and -21.4% on their completed trades.