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

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Listed:
  • Carlos Cueva Herrero

    (Dpto. Análisis Económico Aplicado)

  • Aldo Rustichini

    (University of Minnesota)

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 more rationally and earn significantly higher profits; similarly, mixed markets exhibit more rational behavior, 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.

Suggested Citation

  • Carlos Cueva Herrero & Aldo Rustichini, 2015. "Is financial instability male-driven? Gender and cognitive skills in experimental asset markets," Working Papers. Serie AD 2015-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2015-06
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    More about this item

    Keywords

    asset market experiment; mispricing; price bubbles; gender; cognitive ability;
    All these keywords.

    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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