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Financial instruments with sports betting components: Marketing gimmick or a domain for behavioral finance?

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  • Breuer, Wolfgang
  • Hauten, Guido
  • Kreuz, Claudia
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    Abstract

    We examine theoretically and experimentally a certain class of new financial instruments which are designed as lotteries on the outcome of prominent sports events like the Soccer World Cup 2006. From a theoretical point of view, sports betting products may be superior to a fixed rate investment because of heterogeneous expectations, risk-loving behavior of investors or additional non-monetary utility components. In comparison to the direct placement of bets at bookmakers', sports betting products may be preferable in cases of hedonic framing. Our experimental section, however, reveals the limited practical relevance of these theoretical arguments for "average" decision makers. Despite this, financial instruments with sports betting components offer a certain profit potential due to the diversity of preferences across individuals. Summarizing, the issuance of sports betting products may actually be mainly driven by marketing aspects, nevertheless sports betting products may be considered to be "viable" niche products with low cost of capital for banks.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 33 (2009)
    Issue (Month): 12 (December)
    Pages: 2241-2252

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    Handle: RePEc:eee:jbfina:v:33:y:2009:i:12:p:2241-2252

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Behavioral finance Financial engineering Sports betting Structured products;

    References

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    Cited by:
    1. Gürtler, Marc & Stolpe, Julia, 2011. "Piecewise continuous cumulative prospect theory and behavioral financial engineering," Working Papers IF37V1, Technische Universität Braunschweig, Institute of Finance.
    2. Dichtl, Hubert & Drobetz, Wolfgang, 2011. "Portfolio insurance and prospect theory investors: Popularity and optimal design of capital protected financial products," Journal of Banking & Finance, Elsevier, vol. 35(7), pages 1683-1697, July.
    3. Döbeli, Barbara & Vanini, Paolo, 2010. "Stated and revealed investment decisions concerning retail structured products," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1400-1411, June.
    4. Herrera, Helios & Schroth, Enrique, 2011. "Advantageous innovation and imitation in the underwriting market for corporate securities," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1097-1113, May.

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