52 Pages Posted: 2 Mar 2012 Last revised: 28 Aug 2016
Date Written: July 11, 2013
The suitability of complex financial products for household investors is an important issue in light of consumer financial protection. The U.S. Dodd-Frank Act, for instance, mandates that distributors check suitability when selling structured products to retail investors. However, little empirical evidence exists on such transactions. Using data from Hong Kong, we find that investors purchase 8% more structured products, on average, when the suitability is not checked. The effect of suitability checks is more pronounced for less financially literate investors. Moreover, investors tend to buy products with lower risk-adjusted returns when product suitability is not checked.
Keywords: structured products, suitability check, household investments
JEL Classification: G18
Suggested Citation: Suggested Citation
Chang, Eric C. and Tang, Dragon Yongjun and Zhang, Miao Ben, Suitability Check and Household Investments in Structured Products (July 11, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2013230 or http://dx.doi.org/10.2139/ssrn.2013230