Investment in Financial Structured Products from Rational and Behavioral Choice Perspectives

38 Pages Posted: 23 Dec 2012

See all articles by Moran Ofir

Moran Ofir

Interdisciplinary Center (IDC) Herzliyah

Zvi Wiener

Hebrew University of Jerusalem - Jerusalem School of Business Administration

Date Written: December 23, 2012

Abstract

Analyzing typical structure product (SP) by figuring out the underlying assets and pricing them, demonstrates a transfer of wealth from the investors to the issuers. We argue that many SPs currently available to retail investors are designed to exploit several behavioral biases including: loss aversion, the disposition effects, herd behavior, the ostrich effect and the hindsight bias. We perform an experiment that examines investor decision-making in relation to SP investments. Our findings demonstrate that investors tend to be affected by these behavioral biases, which favor SP investments. Accordingly, regulation dealing specifically with SPs may be warranted to improve investor protection.

Keywords: structured products, behavioral finance, retail investors, securities regulation

JEL Classification: D19, G18, K22

Suggested Citation

Ofir, Moran and Wiener, Zvi, Investment in Financial Structured Products from Rational and Behavioral Choice Perspectives (December 23, 2012). Available at SSRN: https://ssrn.com/abstract=2193282 or http://dx.doi.org/10.2139/ssrn.2193282

Moran Ofir (Contact Author)

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

Zvi Wiener

Hebrew University of Jerusalem - Jerusalem School of Business Administration ( email )

Mount Scopus
Jerusalem, 91905
Israel
(972)-2-588-3049 (Phone)
(972)-2-588-3105 (Fax)

HOME PAGE: http://pluto.mscc.huji.ac.il/~mswiener/zvi.html

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