Back in October, we were all pretty weirded out by news that a junior trader at SAC Capital Management had sued the hedge fund for making him take female hormones.

The trader said that Ping Jiang, one of SAC's biggest earners, wanted traders not to be too aggressive and act more effeminate.

SAC denies the allegations, but perhaps the strategy has merit:

According to new research from the University of Cambridge, a male trader's daily testosterone level is higher on days when he makes more than he would in an average day. What's more, the higher a trader's morning testosterone level, the more money he'll likely have netted before the close of business that day. Testosterone, in other words, can be good for business.

But too much testosterone can lead to a buildup of dangerous bubbles, argues John Coates, one of the study's authors and a former Wall St. trader. Writing in the Financial Times today, Coates uses the findings to explain the biology of market sell-offs and suggests that having more women and older men on trading floors can help firms control risk:

Testosterone is likely to rise in a bull market, increase risk and exaggerate the rally. Chronic cortisol exposure, on the other hand, promotes feelings of anxiety, a selective recall of disturbing memories and a tendency to find danger where none exists. Cortisol is likely to rise in a crash, make traders dramatically and perhaps irrationally risk-averse, and exaggerate the sell-off.

In the present crisis, traders, exposed for months now to the noxious effects of cortisol, may end up in a psychological state known as "learnt helplessness". As a result they may become price insensitive, blunting the instruments of monetary policy. A better model of risk, it seems, would ask questions about the physiology of investors, not just their rationality. For example, if bubbles are amplified by a testosterone feedback loop, does this mean they are largely a male phenomenon? Would a greater presence of women and older men in the markets help stabilise them? If risk preferences are determined in part by hormones, then a risk reduction strategy for banks might entail diversifying the endocrine profiles on their trading floors.

Other research into the link between testosterone and financial decision making has shown that men with high testosterone levels are more likely to reject offers that they deem as unfair, even when it's economically rational to accept. Meanwhile, even more research has found that women could be better traders than men. Given all of this, perhaps it's time to think hard about ways to reverse that backslide.