There is an on-going debate amongst economists as to whether or not markets are efficient. The efficient market hypothesis is predicated on the assumption that investors are rational. The growing body of research in behavioural finance has challenged the rational investor theory, by showing that certain psychological biases affect the behaviour of investors in a manner which causes them to behave irrationally at certain times. The purpose of this paper is to gain further evidence of differential investment performance (which stems from some of these psychological biases) between genders in South Africa. A particular focus is on differences in risk aversion between genders. The data analysed suggests that men tend to hold riskier portfolios than women and tend to be more confident in their abilities than women are. A sample of 2,380 individual investors from a South African asset manager was analysed over ten years (1 January 2003 – 31 December 2012) in order to draw conclusions on the trading behaviour, resultant returns and variances in returns earned by men and women. The results show that there is a statistically significantly negative correlation between trading frequency and investor return. Over the ten year period analysed, there was no statistically significant difference between men and women either in returns earned or the variance of those returns. Further, there was no statistically significant difference between genders in trade frequency. However, in certain age groups and in certain sub-periods of the data, statistically significant differences between genders in both returns and variance of returns is observed, as well as statistically significant differences between the genders of trade frequency. Men had statistically significantly higher variances of their portfolio returns for the period from 1 January 2003 to 28 April 2006 (the period ending before the financial 3 crisis of 2008/9). Given that there is no significant difference in the investment returns earned by men and women in the same period, it follows that women were better investors (on a risk-adjusted basis) in this period. This may be explained by the fact that women are more risk averse than men and tend to hold less risky portfolios. Men had statistically significantly higher returns for their portfolios for the period from 1 May 2006 to 31 August 2009 (the period ending after the financial crisis of 2008/9). Given that there is no significant difference between men and women in respect of the variances of returns over this period, it follows men were better investors (on a risk-adjusted basis) for the period ending after the financial crisis. This could be due to men, being less risk averse than women, re-allocating their portfolio to riskier assets quicker than women after the financial crisis, and being better exposed to the upside of the market recovery. When stratifying the population into age groups to determine whether there is any differential behaviour on this basis, men in the 30 – 39 year old cohort were found to have a statistically significantly higher trade frequency than women. No other significant differences between genders within age groups were measured.
Junor, W. 2014. Men are from investment Mars and women are from investment Venus : further evidence of differential investment performance in South Africa based on gender. University of Cape Town.