Pricing, Demand, and Product Design of Innovative Securities: The Role of Investor Information
63 Pages Posted: 15 Mar 2017 Last revised: 18 Feb 2022
Date Written: August 12, 2019
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: Suggested Citation