There are many bestsellers on the market that deal with the different behaviour of men and women. A well-known book on this topic, “Why men don’t listen and women can’t read maps”[1], tries to give answers to the question. We don’t go that far in this analysis to claim that men can’t listen and women are unable to read a map. However, there are considerable differences between genders, which can be decisive in a long-term investment strategy and influence the success of an investment.


Before announcing the result, however, two theories of behavioural finance must first be discussed in order to examine whether there are differences between genders. Classical capital market theory is a financial theory that always uses a “rational” individual as a starting point. So, if all market participants act rationally, all should always hold the same portfolio (the “market portfolio”).


We know, of course, that this is not the case, but it has taken a long time for behavioural economics theories to be established as a further development of classical capital market theory. John Maynard Keynes even went so far as to claim: “Nothing is as dangerous as pursuing a rational investment policy in an irrational world”.

The most important deviation from classical theories is the overestimation of one’s own capabilities. As early as 1981, psychologist Ola Svenson examined motorists for their self-overestimation[2]. International surveys were conducted in which the participants were asked to assess their own driving. Remarkably, between 60% and 90% stated that they thought their driving was better than that of the average driver. Since this is impossible, a large proportion of the participants must have made mistakes or overestimated themselves.

The same phenomenon prevails in the investment decision process: Many people on the capital market think: “I understand the investment better than the other market participants”. They overestimate their own knowledge and skills. This gives them an illusion of control and usually leads to the purchase of riskier individual securities than would be rational for them. This alone results in a lower return on the capital market for the investor, as they have to pay higher transaction costs.

Classic capital market theory has long been concerned with the concept of risk. However, a new phenomenon included in behavioural economics is the perception of risk by people. Investment risk is objectively measurable and the same for all individuals, however, different characters take risk differently. Investor losses, for example, are weighted more heavily than gains, even though both occur at roughly the same frequency. In the case of losses, rational action is often disregarded: People tend not to realise them or even to increase the risk on the loss position. Science has found that people like to cheat themselves on losses: They can even completely hide losses.

There are many other behavioural theories and errors that can be applied to investor behaviour.

But the question that is actually at issue here is whether there are differences in investment behaviour between men and women. Could this actually be the case? After all, a share is a share! For men and for women! The differences lie precisely in the two theories of behavioural economics explained above: overestimation and risk perception. Of course, a difference in behaviour should also be quantitatively demonstrable, namely in performance. Do women perform better or worse than men in the long run?

The phenomenon of overestimation, which could already be proven in driving behaviour, can also be considered separately according to gender: A study conducted by the insurance group Axa[3] on the driving behaviour of men and women reveals some initial clarity: 77% of men feel safest when they are driving themselves. The figure for women is only 65%.

But this driving behaviour only gives first indications for the assumption that women are less prone to overestimation. And it is not possible to draw any conclusions about the investment. Nonetheless, this has also been tested in a wide variety of studies: In a study by Odean and Barber[4], in which 35,000 investors were surveyed over 6 years, only 50% of the women stated that they were experienced investors, while about 60% of the men assessed themselves as experienced investors. According to the study, this results in much more pronounced male trading, which leads to higher transaction costs.

In a survey of 900 investments by US broker Charles Schwab, 48% of women replied that investing would deter them (“Investing is scary for me”), while this percentage was only half as high among men. Also, considerably fewer women trusted their own investment skills, while men where twice as confident in themselves in this respect. The statement “Investing is fun” was supported by only half of the women, while three quarters of the men agreed.

In fact, men value their investment skills higher than women for two reasons: Either men actually understand more about the investment business or they overestimate themselves more than women. Scientists Odean and Barber draw the second conclusion.

In terms of risk perception, contrary to popular belief, there is no difference between women’s and men’s driving behaviour. In contrast, risk perception plays a very important role in investment behaviour: Economics professor Renate Schubert found that there is no difference in the behaviour of women and men if they are given the probabilities of profit and loss in the experimental case[5]. Differences between the genders occur, however, when the risk of loss increases abruptly and the situation becomes more uncertain.

The results of the economists Niessen and Rünzi of the University of Cologne also provide information about risk. Their research[6], in which US equity funds[7] managed by professional portfolio managers were examined, shows that women take fewer risks specific to individual stocks and that, consequently, their portfolios are better diversified. Women also follow less extreme investment styles than men. They change less between investment styles and thus follow the investment strategy more consistently. The performance of women is therefore more stable over time. And the most important result: women are much less likely to end up among the 5% worst funds.

All this does not guarantee that women will achieve better investment results. And this is exactly where the results are mixed: if you take the study by Odean and Barber, in which private investors’ portfolios were examined, you get a considerable and significant difference in performance between women and men. As men trade more excessively, they have to accept a performance loss of 1.4% per year compared to women. For single men, the phenomenon is even greater compared to single women: they trade 67% more than women and thus achieve a lower performance of 2.3% p.a.. The financial website Digital Look comes to similar conclusions for the years 2001 and 2005 in a survey of 100,000 private investors’ securities accounts: in both years, women achieved a 4 – 6% higher return than men.

On the other hand, if one looks at the results of the Niessen / Rünzi study, in which the behaviour of full-time portfolio managers was used instead of private investors, no significant difference in performance can be observed over time.

This suggests the conclusion that among private investors the gender differences in self-overestimation and risk perception are more pronounced than among professional investors. Men as private investors are more likely to overestimate their skills and take higher risks compared to women. However, the results also show that excessive trading costs performance and that long-term investment strategies pay off. And, of course, that psychology always likes to influence our investment decisions.

[1] Pease, A., Pease, B.: «Warum Männer nicht zuhören und Frauen schlecht einparken», Ullstein, 2000.

[2] Svenson, O.: «Are we less risky and more skillful than our fellow drivers?», Acta Psychologica 47 (1981).

[3] «Frauen oder Männer – Wer fährt besser Auto?», AXA Konzern AG, Psychonomics AG, Köln, 2003.

[4] Barber, B. M., Odean T.: «Boys Will Be Boys: Gender, Overconfidence, And Common Stock Investment», 1999, 2001.

[5] Schubert, R., Gysler, M., Brown, M., Brachinger, H.W.: «Gender Specific Attitudes Towards Risk and Ambiguity: An Experimental Investigation», Juli 2000.

[6] Niessen, A., Rünzi, S.: «Sex Matters: Gender and Mutual Funds», Working Paper, Januar 2006.

[7] Alle US-Aktien-Publikumsfonds, die in der Verantwortung einer Einzelperson stehen und nicht von einem Team verwaltet werden. Zeitaum 1994 – 2003.