Why do Investors Buy Structured Products?

Hens, Thorsten; Rieger, Marc Oliver

doi:10.2139/ssrn.1342360

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Why do Investors Buy Structured Products?

EFA 2009 Bergen Meetings Paper

31 Pages Posted: 16 Feb 2009 Last revised: 18 Aug 2011

See all articles by Thorsten Hens

Thorsten Hens

University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute

Marc Oliver Rieger

University of Trier

Date Written: February 10, 2009

Abstract

Structured investment products, also known as equity- or index-linked notes, have become immensely popular among retail investors in the last ten years. In this paper, however, we show that for classical rational investors the utility gains from structured products are typically much smaller than their fees - even on highly competitive markets with comparably low margins for issuers. The demand for the majority of products can only be explained by behavioral factors, specifically loss aversion, gambling to avoid sure losses, probability weighting, misestimation and overconfidence.

Keywords: structured products, equity-linked notes, index-linked notes, Behavioral Finance, CAPM

JEL Classification: G11, D14, C61, D03, D18

Suggested Citation: Suggested Citation

Hens, Thorsten and Rieger, Marc Oliver, Why do Investors Buy Structured Products? (February 10, 2009). EFA 2009 Bergen Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1342360 or http://dx.doi.org/10.2139/ssrn.1342360