Obfuscation through Complexity: Evidence from the Market for Retail Financial Products

47 Pages Posted: 21 Oct 2020 Last revised: 14 Nov 2020

See all articles by Simon Straumann

Simon Straumann

WHU - Otto Beisheim School of Management

Date Written: August 9, 2020

Abstract

This paper examines obfuscation through complexity of financial innovations in the presence of investor learning. By exploiting the staggered adoption of a price disclosure policy for issuers of retail structured products, I provide evidence that issuers subject to price disclosure significantly increase the complexity of their products over time. I show that an increase in complexity significantly reduces the price elasticity of demand. This finding raises the concern that complexity induces social welfare cost. Market competition further intensifies the obfuscation activities of issuers. Overall, the results suggest that policies that target investor learning can yield adverse effects.

Keywords: structured products, complexity, obfuscation, demand elasticities

JEL Classification: D12, G24, G28, L15

Suggested Citation

Straumann, Simon, Obfuscation through Complexity: Evidence from the Market for Retail Financial Products (August 9, 2020). Available at SSRN: https://ssrn.com/abstract=3670344 or http://dx.doi.org/10.2139/ssrn.3670344

Simon Straumann (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

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