I guess if you're going to discuss this theory you should ask, "Does ejaculation cause hair loss?" rather than, "Does masturbation cause hair loss?" I have no idea, but here's how they MIGHT be linked.
Testosterone is necessary for the production of sperm. Cells in the testes (interstitial cells or leydig cells) produce testosterone and secrete it. We know that testosterone is responsible for secondart sexual characteristics (like pubic hair), but it's also needed for the production of sperm. Sperm is also produced by cells in the testes (sustentacular cells or sertoli cells).
I'm sorry, the next bit is a little hard to explain unless you are familiar with hormones and endocrinology. If I could show you a diagram it would be easier. Basically though, most hormones in the body are regulated by the hypothalamus. It releases a hormone called GnRH. This flows to the Anterior Pituitary gland which in turn releases two hormones: LH and FSH. Think of it like a flow diagram:
Hypothalamus--> GnRH---------> Ant. Pit.------> LH
|
|--->FSH
OK. LH travels through the blood and reaches the interstitial cells. LH is the signal for these cells to produce testosterone. They won't do it unless the hormone LH activates them.
LH------> Interstitial cells---------> testosterone
As I mentioned above, testosterone then helps produce sperm.
FSH on the other hand acts on the Sertoli cells, encouraging them to produce sperm. They will not produce sperm unless activated by FSH (and of course they need testosterone as well).
FSH------> Sertoli cells--------> Sperm
^
Testosterone-----------|
Now, here's the relevant bit, finally. When Sertoli cells are active and producing a lot of sperm, they send out another hormone called Inhibin. Inhibin travels back to the anterior pituitary and decreases the production of FSH. So basically, when sperm levels are high, your body slows down the production of sperm.
Since you're producing less sperm, you now have some extra testosterone (because it's not being used to produce sperm anymore). When concentrations of testosterone are high, the hypothalamus can sense this and it decreases the amount of GnRH it releases. If you follow the flow diagram, this means both less LH and FSH. So, FHS levels are way down and now LH levels are down as well. This leads to decreased production of testosterone (because there is less LH to activate the intertitial cells that produce testosterone).
So overall, when levels of sperm are high, testosterone production is lower. We don't need as much because we're not producing sperm. When sperm is low (after we ejaculate), we need more testosterone to aid in the production of new sperm. So, it could be said that ejaculation leads to higher testosterone levels. It could be that high testosterone levels lead to increased DHT levels...
As far as I know this hasn't been studied in detail and I'm certainly not saying that ejaculation causes hair loss. There is no question though that testosterone is linked to sperm levels and production. What this means in terms of hair loss I have no idea. Sorry for this being so long, but I hope it helps.