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New study confirms that gender equality in markets promotes financial stability

Conducted by researchers at the University of Alicante and the University of Cambridge, it has been published in the Journal of Economic Behavior & Organization

 

Alicante. Friday, 2 October 2015

“The fact that the vast majority of brokers are men is an additional risk factor for the stability of the markets”. This is confirmed by a study carried out by the University of Alicante and the University of Cambridge recently published in the Journal of Economic Behavior & Organization.

Researchers conducted experiments in which volunteers participated in simulated financial markets in a laboratory. During the experiment, those markets made up exclusively either of men or women exhibited a high degree of price instability. However, mixed-gender markets kept much more stable prices.

The findings of the study reveal that there is no difference between those markets made up exclusively by either men or women. Both types of markets are prone to high price volatility, that were generated by participants through a buying and selling market of financial assets created in the laboratory. By contrast, mixed-gender markets, composed of 50% men and 50% women, were significantly more stable and close to the theoretical value of market equilibrium.

In order to explain this phenomenon, researchers have collected information on risk preferences, confidence levels and cognitive abilities of the participants. The latter proved to be a determining factor for the stability of markets and seems to explain the beneficial effect of gender equality: participants with low cognitive ability behaved highly irrationally in homogenous gender markets, incurring heavy losses and destabilising prices. On the contrary, their behaviour was much more cautious and rational in markets with gender equality.

"Our study shows that a high cognitive ability in the market and increased gender equality are beneficial for their correct functioning”, as Carlos Cueva, researcher at the Department of Economic Analysis at the University of Alicante and one of the two authors of the study said. He also added that "Gender equality helps to limit the destabilising effect of those agents with lower cognitive ability”.

One possible explanation for this effect, the authors stated, is that mixed-gender groups promote cooperation and moderate excessive competitiveness that often exhibit homogeneous gender groups.

Reference:Is financial instability male-driven? Gender and cognitive skills in experimental asset markets”, Journal of Economic Behavior & Organization.

 

Bolsa_Chicago

 Image of Chicago Stock Exchange (USA). Source: Institute for Educational Technologies and Teacher Training (INTEF)

 

 

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