ABSTRACT
Hormones directly influence the chemical makeup of the brain by altering how neurons send and receive signals throughout the brain. Overall, research consistently finds that testosterone is positively related to risk taking in economic and financial decisions. Conversely, the literature demonstrates that cortisol is related to risk aversion in economic and financial situations. However, it appears that higher levels of testosterone and cortisol are related to irrational financial decisions such as a higher propensity for the disposition effect, higher trading frequency, or creating market bubbles and ensuing crashes. Furthermore, using testosterone proxies, research demonstrates that more masculine features are associated with lower portfolio risk-adjusted returns, higher corporate leverage, and lower financial statement quality.
