How Risk Averse are Women in Finance?

How Risk Averse are Women in Finance? Gender & Finance Literature Review Series #2

This week we review the article “Individual Risk Attitudes: Measurement, Determinants and Behavioral Consequences” by Thomas Dohmen, David Huffman, Armin Falk, Uwe Sunde, Jurgen Schupp and Gert G. Wagner published in the Journal of the European Economic Association in 2011.

Their article explores how risk-taking attitudes vary and factors that affect this attitude. They show the correlation of ‘the willingness to take risk’ in people with the decisions made in various sectors of their lives. Dohmen and others (2011) use data from the German Socio-Economic Panel (SOEP) surveying 22,000 individuals and compare it with the results from a lottery experiment conducted on 450 individuals.

Estimating risk attitudes

The authors ask individuals how willing are they to take risk in general on a scale from 0 to 10 and further question their willingness to take risk in the context of driving, finance, sports, health and career. Through regression analysis they see that demographics and physique of the person have an impact on the will to take risk. Dohmen and others (2011) find that women are more risk averse than men, that older members of the group are more risk averse than the younger and that having an income and wealth are positively related to risk-taking. In addition, they also find that the will to take risk is directly related to the person’s height and his or her parent’s educational background. These results are further confirmed by the regression studies on the reactions to a lottery game carried out on a smaller population.

Through another regression study on the SOEP survey, Dohmen and others (2011) compare risk attitudes in different contexts and find that people are most willing to take risk with their careers and least willing to take risk with their health and financial matters. These preferences are brought forth by the actions of these individuals in real-life scenarios. For example, a person who is self-employed, naturally has a high preference to take risk in the career forefront.

Implications for gender and risk attitudes

It is important for us to note that Dohmen and others (2011) conclude that women have a lower willingness to take risk than men. They also concretely find that people have the lowest preference to take risk in financial matters and highest for their careers. From this it can be implied that that women in finance may have chosen the field of finance with greater confidence as they are least likely to take risk in both career and finance. In addition, they are also extremely likely to calculate their decisions in the field more carefully in order to avoid high-risk situations.

Use in the Gender & Finance project

One of the aspects of the Gender & Finance project is research. This research uses experiments to better understand the behavior of individuals in terms of financial decisions. It is based on the simulation tool SimTrade, which allows one to study the reaction of participants to gender-related events. At the end of simulation a survey is proposed to participants. One of the questions is about their risk attitude towards risk. This question uses the general question formulated by Dohmen and others (2011): How willing are you to take risk in general?

You can download the PowerPoint presentation and research article below.

Presentation on gender and finance

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Data Links for Gender and Finance

Data Links for Gender and Finance 

Data gathering is essential in the analysis of any study. As a first step, we explored sources of data relevant to women working in the finance sector. Below are some links that can be used to gather key statistics about gender and finance.

  1. The Organisation for Economic Co-operation and Development (OECD)

  1. United States Department of Labor (DOL)

  1. European Institute of Gender Equality (EIGE)

  1. World Bank- Gender Statistics

Do not hesitate to contact us for more information or comment in the comment sections. We would also appreciate any more data links and will research further for such sources of data.

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Does the Gender of Top Executives matter?

Does the Gender of Top Executives Matter?  Literature Review Series # 1: Lee and James (2007)

We studied the works of Lee and James (2007) and below is the summary of this literature review.

Lee and James (2007) shows that when representatives from a social category start taking on new roles, due to the lack of reference, these members start being perceived differently. Women in corporates are examples of this phenomenon as they only comprise 4% of top officers and thus gain a special status. These biases and stereotypes for women have a direct implication on the firm. The authors study stock market price fluctuations for firms in 1990-2000, also following the corresponding major executive announcements, CEO appointments, newspaper articles and press releases.

Hypotheses and Simulations

The authors formulated six hypotheses and ran various simulations to support them. Stock market reaction is found to be more negative on the announcement of a female CEO than on the announcement of a male CEO for companies.

 Having followed various sources of public information, Lee and James (2007) also concludes that there exists a bias in the media with greater number of articles written about female CEOs than for male CEOs over their initial years in office. Moreover, simulation on the language used in these articles also indicates that media tends to emphasize on gender, gender-related topics and organizational considerations for female CEOs while being gender neutral and more organization oriented for male CEOs. A simple example would be how the word “family” shows in articles for women more often than for men.While stock market fluctuations are not as dramatic when women are promoted to higher managerial roles, it tends to be more negative when there is an announcement about the appointment of a female to the CEO position. Further analysis also brings forth that the stock market cares about the women CEO being an insider in the firm and prefers it to a women CEO being a fresh outsider.

Conclusions and Implications

As a result, the authors conclude that corporates should be more aware of the potential risks with female executive appointment and formulate a strategy to communicate this news better. More importantly, stereotypes must change and will, once more women are appointed and it isn’t a rare phenomenon anymore. It is also vital that media is more careful and unbiased in their language as they are responsible in shaping opinions and stock market reactions to a great extent. It is also interesting to explore that diversity can be broadened beyond gender and include racial and ethnic in the corporate world and may have similar stock market implications.

You can download the PowerPoint presentation and research article below.

Literature review Lee James 2007
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CEO nomination, gender and trading behavior

CEO Nomination, Gender and Trading Behavior: Evidence from Lab Experimental Simulations

Estefania Santacreu-Vasut ESSEC Business School

Prof. François Longin ESSEC Business School

We present below our latest research in Gender & Finance focusing on CEO nomination, gender and trading behavior.

CEO gender and market reaction

How do investors react to a new CEO’s gender when the firm announces his/her nomination? To answer this question, we build an experiment that allows us to study gender stereotypes in financial markets, which is one of the most male-dominated industries. This issue is important for society because a lack of female representation in leadership positions may result in higher gender inequality, inefficient talent allocation and lower economic growth.

In this paper, we extend the existing literature by adopting a two-sided approach to the gender dimension: we study both CEO and investor gender. Using experimental simulations in a controlled environment, we disaggregate the market reaction following the CEO appointment according to CEO and investor gender. On the CEO side, an experimental approach allows us to balance the proportion of male/female CEOs, which solves the statistical problems of previous studies (due to too few female CEOs in existing firms). On the investor side, it allows us to balance the proportion of male/female participants.

Research based on experimental simulations

To carry out our research, we use an on-line trading simulation platform called SimTrade. We build a trading simulation where participants trade their portfolio (cash and stocks) on a particular company and react to the news flow, which is a series of events about the company, its sector and the economy. We introduce a gender-related event: the announcement of the next CEO, either a man or a woman. By randomizing the CEO gender at the launch of the simulation, we can identify the trading reactions of participants following the CEO announcement according to his/her gender. Participants’ trading decisions to buy or sell stocks signals their beliefs or expectations regarding the new CEO’s impact on future firm performance.

The experiment was carried out in ESSEC research lab, a facility designed for conducting experiments in a controlled environment. Participants in the experiment were recruited from the Financial Management course at ESSEC Business School.

CEO nomination ESSEC experimental lab
Participants in ESSEC experimental lab

 

Research based on experimental simulations

We find that when a female CEO is nominated, female participants perceive this event as good news as they tend to buy stocks, while male participants perceive it as bad news as they tend to sell stocks. The opposite behavior is observed when a male CEO is nominated: female participants perceive this event as bad news as they tend to sell stocks, while male participants perceive it as good news as they tend to buy stocks. Overall, these results show that investors’ reactions to CEO gender may depend on their own gender. We interpret this finding as gender homophily, a sociological concept meaning that individuals prefer to interact with individuals of their own type.


Trading behavior after the announcement of the next CEO

 

You can download the PowerPoint presentation and research article below.

Presentation on gender and finance
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Studying attention in financial markets

Studying attention in financial markets

Jose Benedicto Duhaylongsod ESSEC Business School

With the growing prominence of behavioral research in business, social sciences, and management, ESSEC has built a Data Lab, a facility designed to conduct experiments in a controlled environment. More recently, ESSEC has invested in advanced behavioral research technology, particularly, the eye-tracking (Tobii Pro Studio), facial recognition (FaceReader™) and observational/behavioral analysis (The Observer® XT) software. Although already established in marketing, the use of these technologies in other fields like management, economics, operations management, and finance opens up a plethora of research opportunities.

With my recent involvement at the ESSEC Research Center, I was fortunate enough to have some first-hand experience with organizing experiments using the software mentioned above, among other things. As a Ph.D. student that does behavioral studies and a researcher in the nascent stage of his career, my exposure to a wide range of research methodologies and practices has enriched my current Ph.D. experience.

With Prof. François Longin (Finance Department) and Prof. Santacreu-Vasut (Economics Department), I organized a series of experiments to study the attention of traders in financial markets. We use the simulation tool called SimTrade in order to see where traders focus their attention when they make their financial decisions. Although economic models assume that individuals are rational and process information in the most efficient way to make their decisions, this is certainly not the case in the real world. See the article “Limited Attention” by Sonya S. Lim and Siew Hong Teoh in “Behavorial Finance: Investors, Corporations, and Markets” Wiley Handbook edited by Kent H. Baker and John R. Nofsinger.

Eye tracking

Tobii Pro Studio is the on-screen based software that creates and handles eye-tracking studies. With this software, a researcher can analyze gaze plots and movements on a screen plus generate in-depth qualitative analyses given certain stimuli (such as an image, a video or a website). The researcher can gather information on how long or how intently the subject stares a particular part of the screen or which part of the screen first grabs his/her attention. The program starts off with the calibration of the subject’s eye gaze to fully capture its movements on the screen. Similar to the previous software, you can export the aggregate data into tables/charts/diagrams or a more detailed dataset.

Facial recognition

FaceReader™ is one of the software offered by the Noldus Information Technology that handles facial expression and recognition analyses. With this software, a researcher can analyze particular behavioral and facial responses of individuals like basic facial expressions, gaze direction, head orientation, etc. to certain stimuli (such as an image, a video or a website). At first, the software records a video of the subject’s face, while he/she is exposed to a particular stimulus. After the experiment, the researcher can have either have an overview of the particular facial expressions the subject expressed or a more detailed account of the changes in expression over time. The data can be exported into summary tables, colorful tables/charts/diagrams or raw dataset for further statistical analyses.

Design of an experiment

The primary purpose of these software programs is to enrich the analysis of behavioral experiments by focusing on other behavioral cues (like eye movement and facial expression) that cannot be captured by the traditional tools like questionnaires or outcomes for a particular task. In designing research or generating the research questions, it would be best to have these particular tools in mind. The researcher can then identify the relevant independent and dependent variables he/she would like to study. From there, he/she can fully design the experiment regarding the treatments and measures he/she could like to gather and encode them on the respective programs. At ESSEC, the Behavioral Research Laboratory assists in the conducting of the experiment, from recruitment of subjects to actual execution of the experiment.

Attention in financial markets: some preliminary results

With the eyetracking tool, we studied where traders focus their attention when they make their financial decisions on the SimTrade simulation platform.

ESSEC Business School
Heat map from the eye tracking experiment

The heat map obtained with the eye tracking tool shows where the participant pays attention during a trading simulation. By decreasing order, he/she pays attention to:

  • The evolution of the stock price
  • The ticker tape with the news
  • The gain/loss during the simulation
  • The data of latest transactions
  • The market given by the limit order book

Jose Benedicto Duhaylongsod
PhD candidate at ESSEC Business School

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Follow the Gender & Finance project on social networks

Follow the Gender & Finance project on social networks

Estefania Santacreu-Vasut ESSEC Business School

Prof. François Longin

For the project Gender & Finance, we defined the mission statement as “unblinding gender in finance: from the classroom to the trading floor”.

In other words, we think that taking into account the “gender” dimension, both in the academic world and in the business world, can bring value for society.

Follow the Gender & Finance project on social networks:

@GenderFinance Prof. Santacreu-Vasut Prof. Francois Longin
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Academic performance and career choices

Academic performance and career choices

We started to look at ESSEC Business School where the population is well balanced between female and male students. During the first year, students have to attend different courses in management (accounting, finance, marketing, law, etc.). This year, the compulsory course in finance, called Financial management, was attended by 214 female students (53%) and 189 male students (47%). The grading system for this course is composed of two individual exams; students may also increase their grade with bonuses based on a series of exercises done in groups of 3 students every week, two mini exams and the participation to the SimTrade experiment. The minimal grade to pass the course is 8/20 and the maximal grade is 20/20.

ESSEC Business School
ESSEC Business School – Campus in Cergy-Pontoise

The study of students’ performance shows that both female and male students have similar success rates: 92.99% for female students and 90.48% for male students. However, female students perform better than male students on average: the average grade is 14.37/20 for female students and 13.28/20 for male student (a statistically significant difference). Female students perform also noticeably better than male students at the top (students with the maximal grade of 20/20): there are 32 female students and only 14 male students.

ESSEC Business School
ESSEC Business School – Dôme in Cergy-Pontoise campus

Although female students perform better male students in the classroom, there are less female students deciding to pursue their studies at ESSEC in finance. At ESSEC, courses for second and third year students are organized through tracks to propose a coherent cursus for students. Among the students of class 2015, who had already decided to do the Finance track, 21 were female students and 43 were male students.

Looking a few years ahead, the same difference is observed for the choice of career as 41 female former students and 76 male former students work in the financial sector after graduation (graduated classes 2013-2016).

To summarize, female students perform better than male students in the classroom but are less numerous to decide to continue to study finance and to embrace a career in finance.

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Impact of gender stereotypes in financial markets

We present below recent results from our research in gender and finance.

SimTrade

SimTradeWe use the SimTrade simulation platform freely available on www.simtrade.fr. SimTrade is a tool used to teach and learn finance, and a tool used for research to conduct experiments to better understand the behavior of individuals in terms of financial decisions.

The originality of SimTrade is to propose simulations with a platform to buy and sell stocks. Like traders in a trading room of an investment bank, SimTraders live a full trading day (10 minutes at your watch) with exciting trading opportunities, stock market prices going up and down, positive and negative news announcements about firms and in the economy that have to be interpreted.

SunCar simulation

SunCar simulationTo study the gender issue in finance, we build the SunCar simulation. SunCar is a company, which designs, produces and sells low-speed electric vehicles for city use. Due to a severe illness, Jacques Dallara, the CEO, will be relinquishing his operational duties in the near future. During the simulated trading session, at midday, SunCar is expected to announce the name of Jacques Dallara’s successor as head of the group. The two candidates for his replacement are: Anna Farrell and Henri Villa.

For our experiments based on simulations, we have randomized the simulations: when the SimTrader launches the simulation, he or she will play sometimes the simulation where Anna Farrell is nominated to be the next CEO, and sometimes the simulation where Henri Villa is nominated to be the next CEO (the probability of each variant being equal to 50%). This gender-related event allows us to capture the behavior of SimTraders: would you sell, buy or do nothing after the news announcement of the next CEO?


Participants playing the stock market with SimTrade at ESSEC KLab

Debriefing of the experiment

What participants did after the news announcement of the new CEO? Was there a difference if a female CEO or a male CEO is appointed? Does this difference depend on the gender of participants (SimTraders)? Their behavior during the simulation is summarized by the table below:


SimTraders’ trading activity after the announcement of the next CEO

What do we observe? When Anna Farrell – a female CEO – is nominated, female traders react more positively to this news announcement as there are 55% of buyers and 45% of sellers among them. On the opposite, male traders react more negatively to this news announcement as there are 38% of buyers and 62% of sellers. When Henri Villa – a male CEO – is nominated, results are reversed: female traders react more negatively to this news announcement as there are 36% of buyers and 64% of sellers among them. On the opposite, male traders react more positively to this news announcement as there are 62% of buyers and 38% of sellers.

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ESSEC Involvement Week – Gender & Finance workshop

ESSEC Involvement Week – Gender & Finance workshop

SimTrade

The Gender & Finance Workshop took place on Friday October 14th 2016 at ESSEC Business School K-Lab located in ESSEC Cergy campus. The workshop was part of the ESSEC Involvement week 2016.

Organized by Professor François Longin and Professor Estefania Santacreu-Vasut, from the Finance and Economics department respectively, the workshop attracted a varied audience from diverse backgrounds.

Gender & Finance workshop:
simulations using SimTrade and discussion around gender in finance

The workshop was organized in two parts: first, participants were invited to participate to an experiment in financial markets to test if gender stereotypes influenced their financial decisions; second, we debriefed the experiment, shared some statistics about the choice of studies and careers by ESSEC students and organized a debate around the issue of gender in finance.

Statistics Gender Finance

Gender Finance Workshop ESSEC KLab

Gender & Finance participants background (morning session)

Statistics Gender Finance

Gender & Finance participants background (afternoon session)

These workshops are a fundamental part of the project Gender & Finance, which mission statement is to “unblinding gender in finance: from the classroom to the trading floor”. In other words, we think that taking into account the “gender” dimension, in the academic world – in the classroom – and in the business world – in the trading room –, can bring value for society.

One of the reasons that pushed us to investigate students’ reaction to gender related news in the context of finance was that we realized that few female ESSEC students choose to specialize in finance during and after their studies although there are as many female as male students, and more importantly, female students tend to perform better in the classroom. We also realized that our finance curriculum was gender blind and that this was probably the case of the financial industry as well. We then decided to follow an experimental approach using the simulation tool SimTrade, which main advantage is to contextualize a financial experiment with social factors to create these workshops.

Know more about our Gender & Finance workshops

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