The 2D:4D and trading success paper

27Jan09

This paper has been all over the news recently. The 2D:4D ratio is the ratio of the length of your second finger to the length of your fourth finger. This ratio, on the right hand, is found to be lower in males on average, and is correlated with prenatal testosterone levels. It has been found to predict incidences of autism, and to predict success in competitive sports. (The lower the ratio, the higher the rates of autism and of sporting success.) The authors of the paper studied the 2D:4D ratios of London traders, and found that trading success correlated significantly with low 2D:4D ratios, in keeping with the findings for sport. But they went beyond measuring just this one correlation. I thought I’d highlight a couple more of their supporting experiments that weren’t reported in the mainstream news.

A separate study had shown that traders with high levels of testosterone in the morning traded more successfully in the afternoon. It has also been found that prenatal androgens sensitize the body and brain to postnatal testosterone. One would therefore expect that traders with high levels of prenatal testosterone (low 2D:4D ratios) would be more sensitive to fluctuations in their postnatal testosterone levels — they would respond more to day-to-day differences in their morning testosterone levels. And indeed, it was found that that for those with lower 2D:4D ratios, the difference between their earnings when they had high morning testosterone levels and their earnings when they had low morning testosterone levels was larger.

The authors also tested another prediction of the hypothesis that prenatal testosterone levels are a significant cause of trading success later in life. Other studies have found that high prenatal testosterone correlates positively with the ability to ignore distractions, maintenance of visual attention, search persistence, and visuomotor skills like scanning and speed of reactions. It is natural to expect that people with such abilities would be better at what is known as high-frequency or noise trading. The authors therefore looked for correlations of success in noise trading with low 2D:4D ratios, and found a significant one. Tellingly, prior trading experience did not significantly correlate with success in noise trading (it did correlate strongly with success in less volatile forms of trading).

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