Author Topic: Catering to Investors Through Product Complexity  (Read 3566 times)

AnilG

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Catering to Investors Through Product Complexity
« on: November 12, 2015, 10:46:32 PM »
Catering to Investors Through Product Complexity, by Boris Vallee & Claire CÚlÚrier
http://www.hbs.edu/faculty/Publication%20Files/16-050_5e5fd8d5-652e-4a13-abe7-ffd1466ef691.pdf

Quote
Abstract

This paper investigates the rationale for issuing complex securities to retail investors. We focus on a large market of investment products targeted exclu- sively at households: retail structured products in Europe. We hypothesize that banks strategically use product complexity to cater to yield-seeking house- holds, by making product returns more salient and shrouding risk. We find four empirical results consistent with this view. First, we show that structured products with complex payoff formulas offer higher headline rates, and that they more frequently expose investors to a complete loss of their investment. We then document that banks are more inclined to issue high-headline-rate and more complex products in low-rate environments. Finally, we find that high- headline-rate and more complex products are more profitable for banks, and that their ex post performance is lower.
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Anil Gupta
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nonattender

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Re: Catering to Investors Through Product Complexity
« Reply #1 on: November 13, 2015, 10:49:38 AM »
Urgh.  I'll click through if I can't sleep and run out of drugs.

Next, someone in academia is going to tell me, in 40 pages, that this whole "new" "tax-loss harvesting" thing is just a marketing stunt to
get people to trade more so that brokers can make more commissions... ;)  (Yes, yes, I know, it has slight marginal utility, I get it - but...)
A little nonsense now and then is relished by the wisest men.