A new research has showed that rise in traders' hormone levels in the stressful, competitive environment caused them make risky investments. Published in Scientific Reports, the study involved simulation of the financial trading floor in the lab, finding the participants were making investments more in risky assets after being given doses of either cortisol or testosterone.

The researchers first measured the hormone levels of the volunteers and then artificially increased them.

Hormonal changes provide a good way to understand traders' behavior, especially during periods of financial instability, said Dr. Carlos Cueva, PhD, one of the lead authors of the study, from the department of economics at the University of Alicante, Spain.

Levels of cortisol increase due to physical or psychological stress. As a result, blood sugar increases in the body that gets prepared for a fight-or-flight response.

The authors said the study results are exciting and pave the way for developing more stable financial institutions.

“Our results suggest that changes in both cortisol and testosterone could play a destabilizing role in financial markets through increased risk taking behavior, acting via different behavioral pathways”, concluded the paper.

Dr. Ed Roberts, from the department of medicine at the UK's Imperial College London and one of the lead authors of the study, said the main aim of the study was to understand how these hormones could influence investment decisions of traders and determine if the environment is too stressful or too competitive.

Dr. Roberts said both cortisol and testosterone are responsible for risky investment behavior.