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Is financial instability male-driven? Gender and cognitive skills in experimental asset markets

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  • Cueva, Carlos
  • Rustichini, Aldo

Abstract

The hypothesis that price stability would reliably increase with the fraction of women operating in financial markets has been frequently suggested in policy discussions. To test this hypothesis we conducted 10 male-only, 10 female-only and 10 mixed-gender experimental asset markets, and compared the effects of gender composition, confidence, risk attitude and cognitive skills. Male and female markets have comparable volatility and deviations from fundamentals, whereas mixed-gender markets are substantially more stable. On the other hand, higher average cognitive skills of the group are associated with reduced market volatility. Individual-level analysis shows that subjects with higher cognitive skills trade at prices closer to fundamental values and earn significantly higher profits; similarly, mixed markets exhibit lower mispricing, particularly for traders with lower cognitive skills. Our results are demonstrated to hold in other experimental asset market studies, suggesting that a mixed-gender composition reduces mispricing across different types of asset markets.

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  • Cueva, Carlos & Rustichini, Aldo, 2015. "Is financial instability male-driven? Gender and cognitive skills in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 119(C), pages 330-344.
  • Handle: RePEc:eee:jeborg:v:119:y:2015:i:c:p:330-344
    DOI: 10.1016/j.jebo.2015.08.014
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    2. Andreas Hefti & Steve Heinke & Frédéric Schneider, 2016. "Mental capabilities, trading styles, and asset market bubbles: theory and experiment," ECON - Working Papers 234, Department of Economics - University of Zurich.
    3. Nobuyuki Hanaki & Eizo Akiyama & Yukihiko Funaki & Ryuichiro Ishikawa, 2017. "Diversity in Cognitive Ability Enlarges Mispricing in Experimental Asset Markets," GREDEG Working Papers 2017-08, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    4. Ciril Bosch-Rosa & Thomas Meissner & Antoni Bosch-Domènech, 2015. "Cognitive bubbles," Economics Working Papers 1464, Department of Economics and Business, Universitat Pompeu Fabra.
      • Ciril Bosch-Rosa & Thomas Meissner & Antoni Bosch-Domènech, 2015. "Cognitive Bubbles," SFB 649 Discussion Papers SFB649DP2015-006, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
      • Ciril Bosch-Rosa & Thomas Meissner & Antoni Bosch-Domènech, 2015. "Cognitive Bubbles," Working Papers 2015006, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    5. Eva Ranehill & Roberto A. Weber, 2017. "Do Gender Preference Gaps Impact Policy Outcomes?," CESifo Working Paper Series 6776, CESifo Group Munich.
    6. Nobuyuki Hanaki & Eizo Akiyama & Ryuichiro Ishikawa, 2018. "Behavioral uncertainty and the dynamics of traders' confidence in their price forecasts ," Post-Print hal-01712301, HAL.
    7. repec:eee:dyncon:v:88:y:2018:i:c:p:121-136 is not listed on IDEAS
    8. Jianxin Wang & Daniel Houser & Hui Xu, 2017. "Do Females Always Generate Small Bubbles? Experimental Evidence from U.S. and China," Working Papers 1063, George Mason University, Interdisciplinary Center for Economic Science, revised Sep 2017.
    9. Butler, David & Cheung, Stephen L., 2018. "Mind, Body, Bubble! Psychological and Biophysical Dimensions of Behavior in Experimental Asset Markets," IZA Discussion Papers 11563, Institute for the Study of Labor (IZA).
    10. repec:eee:dyncon:v:91:y:2018:i:c:p:409-440 is not listed on IDEAS
    11. Zhixin Xie & Lionel Page & Ben Hardy, 2016. "Investigating gender differences under time pressure in financial risk taking," QuBE Working Papers 045, QUT Business School.
    12. Nobuyuki Hanaki & Eizo Akiyama & Yukihiko Funaki & Ryuichiro Ishikawa, 2015. "Diversity in Cognitive Ability Enlarges Mispricing," GREDEG Working Papers 2015-29, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    13. repec:kap:expeco:v:21:y:2018:i:1:d:10.1007_s10683-017-9529-0 is not listed on IDEAS
    14. Owen Powell & Natalia Shestakova, 2017. "The robustness of mispricing results in experimental asset markets," Vienna Economics Papers 1702, University of Vienna, Department of Economics.
    15. Utz Weitzel & Christoph Huber & Florian Lindner & Jürgen Huber & Julia Rose & Michael Kirchler, 2018. "Bubbles and financial professionals," Working Papers 2018-04, Faculty of Economics and Statistics, University of Innsbruck, revised Jun 2018.
    16. Andrea Civelli & Cary Deck, 2017. "A Flexible and Customizable Method for Assessing Cognitive Abilities," Working Papers 17-09, Chapman University, Economic Science Institute.
    17. F.H.J. Polzin & M.W.J.L. Sanders & Florian Täube, 2017. "A diverse and resilient financial system for investments in the energy transition," Working Papers 17-03, Utrecht School of Economics.
    18. repec:eee:ecolet:v:156:y:2017:i:c:p:7-9 is not listed on IDEAS

    More about this item

    Keywords

    Asset market experiment; Mispricing; Price bubbles; Gender; Cognitive ability;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

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