Why do Investors Buy Structured Products?
31 Pages Posted: 16 Feb 2009 Last revised: 18 Aug 2011
Date Written: February 10, 2009
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