In honor of Valentine’s Day, I thought I’d take a look at some interesting research done on gender differences in decision making in the markets.

Brooke Harrington of Brown University studied the performance of investment clubs over an 11 year period (1986-1997). She split the clubs into three categories based on gender composition: male-only, female-only, and mixed gender. Mean male club performance lagged the S&P 500 by 0.56% a year, while the female clubs beat the S&P by 0.28% a year. Even more interesting is the fact that mixed gender clubs performed best, beating the S&P by 1.98% a year on average.

What would account for the difference?

Ms. Harrington, who also spent 10 months observing the behavior of investment clubs first hand, says she may have nailed down two key reasons for the diverging performances.

First, Ms. Harrington said, the two sexes display different biases in picking stocks, with men focusing on stocks related to their work experiences and women, including professional ones, tending to pick consumer-product stocks. So the mixed clubs tended to pick a more diversified group of stocks.

And, Ms. Harrington said, the investment performance of single-gender clubs suffered from a tendency for these clubs — often formed by friends — to be more “socially cohesive,” with members afraid to hurt the feelings of others or knock down their investing ideas.

“There was group think going on,” she said referring to those of the single-gender variety. “In mixed clubs, there’s less at stake socially.” Mixed clubs are more likely to be formed by colleagues, who are used to disagreeing about work-related issues.

So, apropos of St. Valentine’s Day, it looks like we have an uplifting moral: men and women do better together!

Read more: The New York Times - Mars and Venus Do Better Together

More recently, Stefan Ruenzi at the University of Cologne analyzed mutual funds managed by either a single man or woman (no team managed funds). He found that there were significant style differences between the men and women; consistent with earlier research, the men made more aggressive and risky bets and were more likely to change the style of their fund over time, or “drift”. In addition, men were more overconfident in their abilities to time the market, leading to more frequent trading. Women made more conservative investment choices and were more consistent in following their fund’s stated investing style. In the end, the pros and cons of both camps seemed to even out: the funds managed by men profited from their more aggressive bets, but these profits were diluted from overactive trading. The funds managed by women missed out on the riskier profit opportunities but were more diligent in keeping turnover low and sticking to their professed management style. The risk-adjusted returns of the male- and female-led funds were almost equivalent. So from a performance perspective, there does not seem to be reason to prefer a male manager over a female manager. However, because women on average stay more true to their stated investing style, those who are carefully allocating their assets to optimize a portfolio might have reason to prefer a female managed fund.

Here’s their abstract:

To shed some light on the sophisticated relationship between women, men and money, we investigate gender differences among US mutual fund managers. Based on findings from the existing literature on gender differences, we hypothesize that female fund managers take less risk and follow less extreme investment styles that are more consistent over time. Furthermore, we expect female fund managers to be less overconfident and therefore to trade less. Our empirical results support all of these hypotheses. We then turn to the consequences that arise for investors and fund companies, but find no evidence that behavioral differences between female and male fund managers are reflected in fund performance. The more surprising appears our finding, that female managed funds have significantly lower inflows. As fund families earn their fee income on their assets under management, we search for compensating incentives for fund families to employ female fund managers despite their low fund flows. We find that firms with a high probability of being sued for discrimination, i.e. large and well-established firms, are most likely to employ women. Furthermore, female fund managers are more likely to be employed in less conservative states of the U.S. We conclude with implications of our findings for investors and fund management companies.

Read more: Sex Matters: Gender and Mutual Funds