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Supposedly stuffy and conservative, the Bundesbank is not an obvious source of insight into the role of women in finance and investing. But Germany’s central bank not only has a female vice-president – Sabine Lautenschläger is one of the few top monetary officials in the world who is not male – it is also pioneering research into the impact of gender differences.
The study looked at households in Austria, Italy, the Netherlands and Spain. While it is a leap to draw conclusions from this about the likely behaviour of top finance industry professionals, the Bundesbank paper challenges the popular idea that the global financial system would be intrinsically safer if run by women – currently under-represented – rather than testosterone-charged men, and that Lehman Brothers would not have collapsed if it had been Lehman Sisters.
As the authors of the research paper admit, past academic studies have found significant gender differences and suggested that women are less willing to take financial risks than men. But they also note that “a growing number of studies put the previous findings into perspective or refute them altogether”.
A separate Bundesbank study, published a year ago, went even further, concluding controversially that board changes that result in a higher proportion of female banking executives “lead to a more risky conduct of business”.
Attitudes to risk-taking depend on a host of factors, including social context and background – women newly promoted to a bank board might feel pressure to outshine male rivals, for instance.
Where the Bundesbank researchers found greater – but still not overwhelming – evidence of gender playing a role in attitude to risk was in Italy, where inequality between the sexes is considered higher than in many other European countries.
More crucial than their gender, however, is probably the age of investors or investment managers. A study of the German population cited in the Bundesbank paper found the risk propensity of men fell steadily with age. Among women, the steepest fall in risk propensity is between the late teens and 30s. Such results seem plausible. Everyone knows the fecklessness of youth; would you entrust your life savings to someone under 30?
A survey late last year by the Investment Company Institute, representing the US mutual fund industry, found risk tolerance among households headed by investors under the age of 35 had returned to levels last seen before Lehman’s collapse in late 2008. That appears to fit the accepted pattern. Quite what should be made of such results is unclear, however. Have younger US investors failed to appreciate the implications of the crisis for the future of western finance? Or have they simply been faster than their elders in concluding (not unreasonably) that current levels of global uncertainty are the “new normal”?
When it comes to professional investment managers, it may not be their gender or age per se that most affects behaviour, but the era in which they learnt their trade.
Those who entered the finance sector in the late 1990s or the first part of the last decade might be more prone to believe the latest equity rally is the start of the next long bull run.
Older hands in the City of London complain that those entering jobs in the past five years have experienced only “risk on, risk off” trading conditions, in which markets are mesmerised by global macro risks rather than economic fundamentals.
Arguably as interesting as studies of gender differences would be an examination of the impact of academic background on risk-taking and investment performance.
Mathematicians and physicists are blamed for encouraging the development of financial products that proved toxic – but at least they understand unstable systems, probability and concepts of incalculable uncertainty. Social anthropologists and behavioural scientists are familiar with irrational or herd behaviour. Theologians understand schisms and human frailties.
One casualty of the crisis has been the standing of economists, who relied too heavily on assumptions of rational behaviour, ignored financial instability risks, or believed economic boom-bust cycles had lost their ferocity.
Perhaps historians – whether male or female – are less likely to assume that Excel spreadsheets of data for the past 30 years provide a good guide to the future, and best able to put the financial market crises of the past six years in proper context.
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