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New York. Men and women invest differently, a growing body of research has found. And in at least one important respect, women may be better at it.

The latest data comes from Vanguard, a mutual fund company. Among 2.7 million people with retirement accounts at the company, it found that during the financial crisis of 2008 and 2009, men were much more likely than women to sell their shares at stock market lows. Those sales presumably meant big losses — and missing the start of the market rally that began a year ago.

Male investors, as a group, appear to be overconfident, said John Ameriks, head of Vanguard Investment Counseling and Research and a joint author of the study. “There’s been a lot of academic research suggesting that men think they know what they’re doing, even when they really don’t know what they’re doing,” he said.

Women, on the other hand, appear more likely to acknowledge when they do not know something — like the direction of the stock market or the price of a stock or bond.

Staying the course and minimizing costs — selling high and buying low, if you trade at all — are the classic characteristics of good long-term, buy-and-hold investors. But during the financial crisis, the Vanguard study showed, men were more likely than women to trade and to do so at the wrong times.

That fits the patterns found in path-breaking research by Brad Barber of the University of California, Davis, and Terrance Odean, now at the University of California, Berkeley. In a 2001 study titled, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” they analyzed the investing behavior of more than 35,000 households from a large discount brokerage company. All else being equal, men traded stocks nearly 50 percent more often than women. This added trading drove up men’s costs and lowered returns.

While both sexes reduced net returns through trading, men did so by 0.94 percentage points more per year.

Professor Barber said: “In general, overconfident investors are going to interpret what’s going on around them and feel they are able make decisions that they’re really not equipped to make.”

Short-term financial news often amounts to little more than meaningless “noise,” he said. Far more than women, men try to make sense out of this noise and to no avail.

Of course, gender generalizations must be taken with caution: they clearly do not apply to all men or all women. “The differences among women and the differences among men are much greater than the differences between men and women,” he said.

Nevertheless, numerous studies show that men are more prone to make this particular mistake more than women. Women have been shown to be more risk-averse than men.

Selling volatile stocks in a down market — as male investors did more often than women, according to the Vanguard data — might seem to protect a portfolio. But that is not necessarily so. Selling before the market falls and buying after it falls is the smart move. For long-term investors, though, the best strategy may be to ignore short-term market movements, perhaps rebalancing a diversified portfolio every so often.

Gender differences appear to extend to other financial behavior. For example, women who are chief executives and company directors tend to pay a lower premium in corporate takeovers, saving their shareholders a bundle, according to a 2008 study of mergers and acquisitions by Maurice Levi, Kai Li and Feng Zhang of the University of British Columbia. What explains these differences? The answer is not clear. “Is it biological, or cultural?” Professor Barber asked. “Nature or nurture? At this point, we don’t know.”

Plenty of research is under way, though. Over the past five years, brain-imaging technology has made it possible to determine “what is happening in the brain just before people make financial decisions,” said Brian Knutson, a Stanford neuroscientist.

Researchers have found that activating the nucleus accumbens — a brain region that is stimulated when you eat delicious food or look at an attractive person — can affect financial risk-taking. When young Stanford men were shown pictures of partially clothed men and women kissing, he said, that region of their brains was activated.

And when they were then given financial tests, the men became more likely to “make high-risk gambles.”

Others studying the effects of hormones on financial behavior have found correlations between testosterone and risk-taking.

 

The New York Times