Do men or women make more money in stock markets? Nimesh Chandan, CIO, Bajaj Finserv weighs in

Behavioural scientists Terrance Odean and Brad Barber have shown that overconfident investors trade more frequently than rational investors, and in doing so they lower their returns. Overconfident investors can be described as those who believe that their knowledge about the value of a security is correct. Odean and Barber conducted a study of stock trades from February 1991 to January 1997 of 37,000 household (retail) stock accounts. They found that on average, men traded 45 percent more than women, which resulted in lower returns. Single men were seen to trade 67 percent more than single women.

Men, who traded more, were deemed to display higher overconfidence and generated lower net returns than women. This is an area all investors can improve on, especially men.

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Stock selection

In the same study, we find that men selected riskier stocks than women. Here, the authors define risk as beta risk and size risk (the smaller the stock, the riskier).

Risk tolerance

In another study, Olsen and Cox (2001) found that women financial professionals placed greater weight on the downside, or loss potential than men. Also, women appear to be more sensitive to the uncertainty associated with investment in financial assets. Another study found that men do not process all the information available for investment analysis, and are highly selective. These findings help conclude that women are more risk-averse than men, as they process information differently than men.

Being conscious of the downside is a sign of a good investor. However, it is also important to understand that risk aversion should not hinder participation in the equity asset class itself. Many surveys conducted in different countries have found that risk aversion also leads to women choosing cash or savings accounts over equity assets.

Thus, dislike for uncertainty may lead to women allocating a lower amount to equities, or avoiding them entirely.

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Other differences

Women do better than men during market selloffs. A 2009 study by Vanguard mutual funds of 2.7 million individual retirement accounts found that during the 2007-2008 financial crisis, accounts belonging to women lost 13 percent, while accounts belonging to men lost 16 percent; women were much less likely to sell into the stock slide, at or near market lows.

Warwick Business School conducted a study of 2,800 UK-based women and men and found that women were more likely to invest in funds with a consistent record, rather than opt for the volatility of individual stocks.

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In 2019, Gina Rippon, a British neuroscientist, published her book, “Gendered Brain: The New Neuroscience that Shatters the Myth of the Female Brain,” which led to a lot of debate. She argued that the difference between the behaviour of men and women is not because of the difference in the structure of the brain (nature), but because of the difference in their experiences (nurture).

If it is about nurture, then there is a possibility of change and the possibility that anyone (from any gender) can be a better investor.