WHEN directors of a company buy or sell shares, other investors often see this as a signal. Surely they must know something? The regulators worry about this issue too, which is why there are restrictions on when shares can be bought and sold. Trading may not always be driven by special knowledge; selling decisions may be driven by divorces or house purchases. Often, a stake in the company is a director’s main savings pot. Buying shares seems more likely to be a sign of confidence, than selling is a sign of despair.

A study by the University of Exeter Business School analysed 80,000 trades in the UK market and found an interesting dichotomy when looking at trades made by male and female directors. When men bought, the market responded by pushing the shares an average 1.55% higher in the following 20 days; when women bought, the gain was just 0.88%. Perhaps this discrepancy is driven by sexism because most fund managers are men. You can imagine the thought process: “Women directors! They’re just there as tokens. Now where’s my BMW? I’m off for a round of golf.”

But here is the best bit. If the men had only listened to the women, their performance would have been better. In the year after a director’s purchase, the average monthly gains were 0.68% when females bought, and just 0.37% for males; a cumulative spread of almost 4 percentage points a year. Women were better at taking the longer view.

This discrepancy should be no surprise to those who recall the Barber/Odean study “Boys will be boys” of a decade ago. The academics studied the trading records of male and female brokerage clients. The former traded 45% more than the latter, and the result was a drag on their performance of almost a full percentage point a year; single men (who had not been subject to the civilising influence of a wife) traded 67% more often and this cut their performance by 1.44 points a year. The reason for this discrepancy? Overconfidence; men thought their decision-making would be proved right. Just as they never ask for directions, they assume they are smarter than the conventional wisdom. In fact, the stocks they buy when they trade tend to underperform the stocks they have sold (the same is true of women but because they trade less often, the damage is reduced).

Perhaps this explains Paul Tudor Jones’s recent quip about the lack of female macro traders. Women don’t become macro traders because they are smart enough to realise that it’s not the best way to success; let the men run around being hyperactive and feeling important.

http://www.economist.com/blogs/buttonwood/2013/06/investing