Investors with too many options?

Arbeitspapier

During the last decade, markets for covered warrants (bank-issued options) have flourished in Europe and Asia. In these markets, investors often face a choice between many instruments that differ only slightly from each other. Based on retail trades in call options on the German DAX index, this paper documents substantial price dispersion across securities that are close substitutes. Moreover, investors generally fail to identify attractively priced options. The results suggest that the observed product proliferation imposes a substantial search cost on investors even though the products are homogenous and their pricing is well understood. The search cost is estimated to average 1% of the amount invested, the same order of magnitude as the average spread.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 1197

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions ; Contingent Pricing; Futures Pricing; option pricing ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: investor behavior ; OTC derivatives ; price dispersion ; search costs ; OTC-Handel ; Optionsgeschäft ; Preisstreuung ; Anlageverhalten ; Informationskosten ; Deutschland

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dorn, Daniel
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/153631
• Last update: 10.03.2025, 11:44 AM CET