Better explicating the strengths and shortcomings of these models will help refine projections and improve transparency in the years ahead.
Image credit: Witsawat.S.
Edited by Bruce S. McEwen, The Rockefeller University, New York, NY, and approved November 6, 2007 (received for review May 1, 2007)
Article Figures & SI
Figures
- Fig. 1.
Trading desk.
- Fig. 2.
Testosterone and economic return. Boxplot showing average profit and loss (P&L, y axis, £ sterling) made between 11:00 a.m. and 4:00 p.m. on days when subjects had 11:00 a.m. testosterone above (High) and below (Low) their median during the study. Individual data points are shown. Fourteen out of 17 subjects had higher P&L on high testosterone days than on low; the remaining subjects had negligible differences.
- Fig. 3.
Cortisol and the variance of economic return. (A) Plot of mean cortisol (pg/ml) during the study for each trader correlated against the standard deviation of his profit and loss (P&L, logs). (B) Standard deviation of each trader's cortisol correlated against the standard deviation of his P&L (logs).
- Fig. 4.
Group cortisol plotted against implied volatility of German Bunds. Implied volatility in most bond markets follows the calendar of U.S. economic statistics, rising during the week of Chicago Purchasing Managers Index (PMI), peaking on or just before the Employment Report, and dropping after the information contained in these numbers has reduced uncertainty over the state of the economy. The upper line is the daily cortisol level averaged from the group of traders (left axis, pg/ml; mean ± SEM, n = 11). The lower line is the implied volatility from German Bund (bond future) options with ≈1 month to expiration [right axis; Annualized standard deviation of the natural logs of daily price returns. Friday options (days 4 and 8) repriced to Sunday to eliminate the weekend effect. Bloomberg data]. Shaded bars display the importance of each economic release. The bars represent regression-derived day weights, i.e., the extra variance in Bund yields expected on that day due to the release of the U.S. economic statistic [lower left axis; basis points in yield change (12)]. The bars are for illustrative purposes only and do not enter into the statistical analysis. Implied volatility on day 5 was higher than expected, given the relative importance of the Chicago PMI, because the German market was surprised by the result of the French referendum.
Tables
Week Monday Tuesday Wednesday Thursday Friday 1 Home sales (3:00 p.m.) Durable goods (1:30 p.m.) Unemployment claims GDP (revised) (1:30 p.m.) Personal income (1:30 p.m.) Early close (7:00 p.m.) 2 Bank holiday Chicago PMI (3:00 p.m.) ISM (3:00 p.m.) Unemployment claims (1:30 p.m.) Employment report (1:30 p.m.) Referendum results The week from Chicago Purchasing Managers Index (Chicago PMI) to the Employment Report includes the most important U.S. economic numbers and is often the biggest week of the month for traders in terms of volatility and P&L (see Fig. 4). Home sales, existing homes sales; durable goods, sales of goods that last >2 years; unemployment claims, weekly claims for unemployment insurance benefits; GDP, gross domestic product; early close, U.S. markets closed midafternoon on Friday before a long weekend; referendum results, results of Sunday's French referendum on the European Union constitution; ISM, Institute of Supply Management Manufacturing Index; and employment report, unemployment rate plus monthly change in nonfarm payrolls. Times given in parentheses are Greenwich Mean Time. Sampling days are in bold.
Age Years trading Testosterone Cortisol Approximate annual income, first-year traders not included, £ Average of a.m. plus p.m., pg/ml Average of a.m. plus p.m., pg/ml Mean 27.5 2.6 114 1,697 164,000 Std 5.6 1.9 24 749 135,000 Range 19/38 9 mo/6 yrs 67/184 617/4,322 21,770/443,340 Security Euribor Schatz Bobl Bund Dax Eurostox Euro/$ U.S. note Gilt Primary trading security 2 1 2 8 3 1 Secondary trading securities 1 2 8 2 3 3 4 1 Total 3 1 4 16 5 4 3 4 1
Endogenous steroids and financial risk taking on a London trading floor
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