Simple is Simply not Enough – Features versus Labels of Complex Financial Securities

Review of Derivatives Research, forthcoming

52 Pages Posted: 16 Nov 2020 Last revised: 27 Mar 2024

See all articles by Martin Thomas Hibbeln

Martin Thomas Hibbeln

University of Duisburg-Essen - Mercator School of Management

Werner Osterkamp

University of Duisburg-Essen - Mercator School of Management

Date Written: February 2, 2024

Abstract

We examine how design features and labels of complex financial securities affect pricing and performance. Hence, we utilize the security design features required by the European Union’s Securitization Regulation and the optional STS label (“Simple, Transparent, and Standardized”). Based on a unique dataset of European securitizations with 31 million quar-terly loan observations, we find that investors hardly consider the features but rely on the existence of the label, although the latter has no performance-increasing effect. Our results reveal that investors neglect a proper risk assessment and misinterpret the easily accessible label as a signal of superior performance.

Keywords: asset-backed securities; EU securitization regulation; simple, transpar-ent, standardized (STS); loan performance; complex securities

JEL Classification: D82, G01, G18, G21

Suggested Citation

Hibbeln, Martin Thomas and Osterkamp, Werner, Simple is Simply not Enough – Features versus Labels of Complex Financial Securities (February 2, 2024). Review of Derivatives Research, forthcoming , Available at SSRN: https://ssrn.com/abstract=3598123 or http://dx.doi.org/10.2139/ssrn.3598123

Martin Thomas Hibbeln

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany
+49 203 379-2830 (Phone)

Werner Osterkamp (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany

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