Take a look in the mirror. Measure the width of the middle your face between your ears. Next, measure the height between your upper lip and the halfway point between your eyebrows.
Now, take the first number and divide it by the second number.
For men, the resulting ratio is surprisingly meaningful: academics have found it’s related to testosterone levels. Generally speaking, the wider your face, the higher your testosterone. Not only that, but this metric can be used to predict various personality traits, including investing.
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Take for example, corporate leaders. Academics have found that male CEOs with wider faces on average deliver higher returns on assets, but are also are more likely to engage in riskier behaviors, like financial misreporting that results in SEC enforcement actions.
A wider face is also linked to greater achievement drive in U.S. presidents, higher military rank among cadets at West Point and more aggressive behavior in hockey players.
But what does it mean for investors? In a study released in January, two finance professors looked at images of more than 3,000 hedge fund managers, calculated their so-called “facial width-to-height ratios,” and then tracked financial performance.
Here’s what the researchers, Yan Lu of the University of Central Florida and Melvyn Teo of Singapore Management University, found:
The testosterone factor. Hedge fund managers with wider faces (i.e. those with higher testosterone levels) significantly underperformed the hedge fund managers with narrower faces. The high-testosterone managers tended to engage in riskier behavior. They made trades more frequently, had a stronger preference for lottery-like stocks and were more reluctant to sell loser stocks.
The study contrasts with earlier findings by other researchers that showed high-frequency traders with high testosterone levels delivered greater profits.
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In that case, the researchers argued that higher testosterone was associated with faster physical reflexes, which might benefit a high-frequency trader who holds onto their positions for mere seconds or minutes.
Hedge fund managers, on the other hand, take more time to analyze their positions and might hold their trades for weeks, months, and even years. In their case, testosterone hurt performance, not helped, Lu says.
“In the context of the ultra-competitive and male-dominated hedge fund industry, where masculine traits such as aggression, competitiveness, and drive, are encouraged, expected, and even celebrated, our results on the underperformance of high-testosterone fund managers are indeed surprising,” the authors wrote.
(The researchers also looked at female hedge fund managers, by the way, but because there are so few — Lu estimates women make up fewer than 5 percent of the occupation — they weren’t confident the results were statistically significant.)
Another view. One possible alternate explanation, detailed by Matt Levine at Bloomberg View, is that perhaps wide-faced, high-testosterone men just tend to fit the typical image of a hedge fund manager more than the others, and as a result, they have an easier career path. If lower testosterone men have to overcome more barriers, as a result, the ones that succeed might be, on average, more skilled.
Lu acknowledges that argument is “completely reasonable.”
“If someone looks very experienced, and can shake hands very firmly, maybe it will be easier to connect to the money. The other group may need to work harder to get to that level,” she says. “We’re thinking about how to explain this situation and we’re thinking about other tests we can do.”
For her, the next step involves testing the findings among the larger academic community.
“This paper got a lot of media coverage, and people are very interested in this topic,” she says. “The next step is, we’re going to get more opinions and suggestions from academia, and we’re going to try to submit to one of the top journals in finance.”
Judge an advisor on performance. For now, Lu thinks the study does have some implications for average investors. When you’re looking into investing in any kind of fund, “Make sure they are a good manager, do not trust your gut,” she says. “You really need to look at past performance, trading strategies and do not judge on appearance.”
The research paper concludes: “Since alpha males do not deliver alpha, investors will do well to go against conventional wisdom and eschew masculine fund managers.”
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Going back to the beginning exercise: How do you know if your face is considered wide or narrow? In this particular study, the median width-to-height ratio was 1.826, with a standard deviation of 0.163. This means that faces with a ratio below 1.6 might fall in the narrow category, and faces with a 2 or higher, might be thought of as wide.
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Do Testosterone Levels Change How You Invest? originally appeared on usnews.com
