Catering to investors through product complexity

Arbeitspapier

This study investigates the rationale for issuing complex securities to retail investors. We focus on a large market of investment products targeted exclusively at households: retail structured products in Europe. We develop an economic measure of product complexity in this market via a text analysis of 55,000 product payoff formulas. Over the 2002-2010 period, product complexity increases, risky products become more common, and product headline rates diverge from the prevailing interest rates as the latter decline. The complexity of a product is positively correlated with its headline rate and risk. Complex products appear more profitable to the banks distributing them, have a lower expost performance, and are more frequently sold by banks targeting low-income households. These empirical facts are consistent with banks strategically using product complexity to cater to yield-seeking households.

Angaben zum Objekt

• ISBN: 978-92-95081-41-3
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ESRB Working Paper Series ; No. 14

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Educational Finance; Financial Aid ; Consumer Protection ; Consumer Economics: Empirical Analysis
• Thema: Financial Complexity ; Catering ; Shrouding ; Reaching for Yield ; Household

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Célérier, Claire ; Vallée, Boris
• Ereignis: Veröffentlichung
• (wer): European Systemic Risk Board (ESRB), European System of Financial Supervision
• (wo): Frankfurt a. M.
• (wann): 2016

Weitere Informationen

• DOI: doi:10.2849/9466
• Handle: http://hdl.handle.net/10419/193521
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ