Pricing, Demand, and Product Design of Innovative Securities: The Role of Investor Information

63 Pages Posted: 15 Mar 2017 Last revised: 18 Feb 2022

See all articles by Manuel Ammann

Manuel Ammann

University of St. Gallen - School of Finance

Marc Arnold

University of St. Gallen - School of Finance; Swiss Finance Institute

Simon Straumann

WHU - Otto Beisheim School of Management

Date Written: August 12, 2019

Abstract

This paper investigates the role of incomplete investor information for the pricing, demand, and design of innovative securities. By analyzing the information that structured product issuers provide to the investors of those products, we can identify specific sources of incomplete investor information in this market. We show that the issuers exploit these information frictions to push overpriced securities to investors. We also estimate the welfare implications of this behavior. In addition, we find that incomplete investor information induces issuers to design products with high information frictions. Our results suggest that product issuers' behavior increases information frictions in the financial system.

Keywords: structured products, investor information, financial innovation

JEL Classification: D8, G34, M52

Suggested Citation

Ammann, Manuel and Arnold, Marc and Straumann, Simon, Pricing, Demand, and Product Design of Innovative Securities: The Role of Investor Information (August 12, 2019). University of St.Gallen, School of Finance Research Paper No. 2017/04, Paris December 2017 Finance Meeting EUROFIDAI - AFFI, Available at SSRN: https://ssrn.com/abstract=2932067 or http://dx.doi.org/10.2139/ssrn.2932067

Manuel Ammann

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Marc Arnold

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Simon Straumann (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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