Can Female Traders Fix the Risky Banking Business?

Regulators and senior banking executives are increasingly embracing the argument that female representation on trading floors could mitigate excessive risk-taking in the financial services industry. Britain's Parliamentary Commission on Banking Standards recently endorsed this view, echoing concerns raised by Andrea Orcel, head of UBS's investment bank, who told the commission that a shortage of female top executives had exposed his firm to heightened risk. Both assertions reflect a broader belief that women tend to be more conservative investors and therefore better positioned to counterbalance the aggressive behavior associated with male-dominated trading environments.

Supporting evidence for this thesis comes from Rothstein Kass, a Roseland, New Jersey–based professional services firm, which tracks female-led investment performance through its Women in Alternative Investments Hedge Fund Index. The index achieved 6 percent annualized returns over the six and a half years ended June 30, 2013, substantially outperforming the HFRI Fund Weighted Composite Index at 3 percent. This performance gap has bolstered the case for gender diversity as a risk-management strategy.

However, the interpretation of these results remains contested. Jill DiLosa, founder of the New York–based Vanna Partners Fund, emphasizes the constraints of the available data, stating that the limited sample size makes it inherently difficult to determine whether female traders' outperformance reflects behavioral traits or other confounding variables. More critically, behavioral economist Anna Dreber Almenberg of the Stockholm School of Economics, who specializes in studying gender differences in financial risk-taking, urges policymakers to resist mandating gender quotas based on this theory. While her research confirms that men do take more financial risks than women on average, Dreber Almenberg points out a crucial distinction: trading as a profession may naturally attract risk-tolerant individuals of both genders. She argues that focusing on personality traits and risk profiles would be more effective than implementing gender-based policies, as the relevant factor may be individual temperament rather than gender per se.