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The investor in structured retail products: Advice driven or gambling oriented?

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  • Abreu, Margarida
  • Mendes, Victor

Abstract

Structured retail products (SRP) are one of the most visible faces of financial innovation and are becoming increasingly popular amongst retail investors. However, there is strong consensus that retail investors’ preference for structured products is difficult to explain using the standard rational theory, those products being in general sold at a significant premium. Studying the actual trading behavior of individual investors we provide evidence consistent with the view that SRP likely offer value to some informed investors compared to other products, and that SRP allow investors to access segments otherwise not available to them. Nonetheless, our results also suggest that the increasing popularity of SRP is deeply related to investors’ behavioral biases, particularly overconfidence and gambling.

Suggested Citation

  • Abreu, Margarida & Mendes, Victor, 2018. "The investor in structured retail products: Advice driven or gambling oriented?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 17(C), pages 1-9.
    • Handle: RePEc:eee:beexfi:v:17:y:2018:i:c:p:1-9
    DOI: 10.1016/j.jbef.2017.12.001
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    References listed on IDEAS

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    Cited by:

    1. Lammer, Dominique Marcel & Hanspal, Tobin & Hackethal, Andreas, 2020. "Who are the Bitcoin investors? Evidence from indirect cryptocurrency investments," SAFE Working Paper Series 277, Leibniz Institute for Financial Research SAFE.
    2. Ana Brochado & Margarida Abreu & Victor Mendes, 2020. "Correlates of Gambling," Economics Bulletin, AccessEcon, vol. 40(1), pages 456-462.
    3. Christian Bauer & Marc Oliver Rieger, 2021. "The Slow Death of Capital Protection," JRFM, MDPI, vol. 14(7), pages 1-8, July.
    4. Geetika Madaan & Sanjeet Singh, 2019. "An Analysis of Behavioral Biases in Investment Decision-Making," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 10(4), pages 55-67, July.
    5. Dalla Costa, Aldo Fortunato & Mollica, Vito & Singh, Abhay, 2021. "Payment methods and the disposition effect: Evidence from Indonesian mutual fund trading," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    6. Zhang, Xiaotao & Wang, Ziqiao & Hao, Jing & Liu, Jiubiao, 2022. "Stock market entry timing and retail investors' disposition effect," International Review of Financial Analysis, Elsevier, vol. 82(C).
    7. Andreas Hackethal & Tobin Hanspal & Dominique M Lammer & Kevin Rink, 2022. "The Characteristics and Portfolio Behavior of Bitcoin Investors: Evidence from Indirect Cryptocurrency Investments [The investor in structured retail products: advice driven or gambling oriented]," Review of Finance, European Finance Association, vol. 26(4), pages 855-898.

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    More about this item

    Keywords

    Structured retail products; Behavioral finance; Overconfidence; Gambling;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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