The Influence of Gender on the Perception and Response to Investment Risk: The Case of Professional Investors

Abstract

In a previous issue of this journal, O'Barr and Conley, noted that cultural differences caused public pension fund managers to invest differently and more conservatively than their private fund counterparts. An additional insight to is that cultural factors have a non-trivial affect on how assets are managed. This article continues with this theme and suggests that, even with equivalent training, experience and information, investment managers make different decisions based on identifiable cultural differences. This study focuses on professional men and women investment managers who perceive and respond to risk differently. This supports O'Barr and Conley, suggesting cultural factors may be responsible for this risk related gender effect. There is extensive evidence that when faced with social and technological hazards, women are more risk averse than men. This appears to be so even when decision-makers of both genders have the same level of expertise and experience. In the investment realm, non-professional women investors also appear to accept less risk than their male counterparts, after controlling for factors such as age, education, wealth and experience. Although the precise reason for this gender difference in risk taking is unknown, it appears to be related to evolutionary and social factors. This paper is unique in that it investigates the risk/gender difference for professionally trained investors. It is found that women investors weight risk attributes, such as possibility of loss and ambiguity, more heavily than their male colleagues. In addition, women tend to emphasize risk reduction more than men in portfolio construction. While gender differences appear to influence perceptions of risk and recommendations to clients, these differences tend to be the most significant for assets and portfolios at risk extremes.