What drives Performance in the Speculative Market of Short-term Exchange-traded Retail Products?

55 Pages Posted: 29 Aug 2012 Last revised: 1 Jul 2016

Stefanie Baller

University of Passau

Oliver Entrop

University of Passau

Alexander Schober

University of Augsburg

Marco Wilkens

University of Augsburg

Date Written: June 2016

Abstract

This paper considers the realized returns of individual investors in warrants and leverage certificates. First, we derive a general formula that analytically decomposes the return into several economically meaningful components that are related to investor’s trading behavior and the issuers’ price-setting strategy. Second, we use a large trade dataset to analyze returns along these components and also link them to investors’ risk taking strategy. Our main findings are threefold: (i) The overall performance is poor. (ii) Investors show neutral timing skills, while the main performance driver is the issuers’ price-setting. (iii) Higher risk taking by investors diminishes the performance further. Our results imply that retail investors do not achieve a pecuniary benefit from the considered financial innovations.

Keywords: Leverage Certificate; Warrant; Financial Innovation; Retail Investor

JEL Classification: D40, G11, G21, G24

Suggested Citation

Baller, Stefanie and Entrop, Oliver and Schober, Alexander and Wilkens, Marco, What drives Performance in the Speculative Market of Short-term Exchange-traded Retail Products? (June 2016). Available at SSRN: https://ssrn.com/abstract=2137082 or http://dx.doi.org/10.2139/ssrn.2137082

Stefanie Baller

University of Passau ( email )

Innstrasse 27
Passau, 94032
Germany

Oliver Entrop (Contact Author)

University of Passau ( email )

Innstrasse 27
Passau, 94032
Germany
+49 851 509 2460 (Phone)
+49 851 509 2462 (Fax)

Alexander Schober

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86135
Germany

Marco Wilkens

University of Augsburg ( email )

Universitaetsstr. 16
Augsburg, 86159
Germany
+49 821 598 4124 (Phone)
+49 821 598 4223 (Fax)

HOME PAGE: http://www.wiwi.uni-augsburg.de/bwl/wilkens/team/wilkens_marco/

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