Why do Investors Buy Structured Products?
University of Zurich - Department of Banking and Finance; Norwegian School of Economics and Business Administration (NHH); Swiss Finance Institute (Zurich Center)
Marc Oliver Rieger
University of Trier
February 10, 2009
EFA 2009 Bergen Meetings Paper
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.
Number of Pages in PDF File: 31
Keywords: structured products, equity-linked notes, index-linked notes, Behavioral Finance, CAPM
JEL Classification: G11, D14, C61, D03, D18
Date posted: February 16, 2009 ; Last revised: August 18, 2011