Persuasion and Persuasibility of Individual Investors by Scenarios

36 Pages Posted: 3 Jan 2013 Last revised: 27 Jul 2014

See all articles by Rainer Baule

Rainer Baule

University of Hagen

Philip Blonski

Fern Universität in Hagen

Thomas Demmer

University of Siegen

Arnd Wiedemann

University of Siegen

Date Written: July 27, 2014

Abstract

Banks are often accused to bias their information documents in order to exploit less sophisticated investors. This paper analyzes the sales prospectus scenarios created by banks to demonstrate their structured financial products for retail investors. Based on a broad data-set of prospectuses in the US and German markets, we find that, contrary to previous studies of single products, banks do not bias their scenarios to make their products appear better than they are. An experimental study shows that they have little reason to do so since such a bias has no significant impact on potential investors' perception of product return. It does, however, have a small impact on the perception of product risk, as upward-biased returns in scenarios lead to a lower estimation of downside risk. In the light of these results, a stricter regulation of information documents is not necessary.

Keywords: retail derivatives, individual investors, sales prospectuses, structured financial products

JEL Classification: G11, G21, G28

Suggested Citation

Baule, Rainer and Blonski, Philip and Demmer, Thomas and Wiedemann, Arnd, Persuasion and Persuasibility of Individual Investors by Scenarios (July 27, 2014). Available at SSRN: https://ssrn.com/abstract=2196043 or http://dx.doi.org/10.2139/ssrn.2196043

Rainer Baule (Contact Author)

University of Hagen ( email )

Universitaetsstrasse 41
Hagen, 58097
Germany

Philip Blonski

Fern Universität in Hagen ( email )

Universitaetsstrasse 41
Hagen, 58097
Germany

Thomas Demmer

University of Siegen ( email )

Hoelderlinstrasse 3
57068 Siegen, NRW 57068
Germany

Arnd Wiedemann

University of Siegen ( email )

Hoelderlinstrasse 3
57068 Siegen, NRW 57068
Germany

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