Capital Protected Notes for Loss Averse Investors : A Counterintuitive Result
AbstractCapital protected notes are very popular structured products since the internet bubble burst in 2000. Investors are protected against large losses they could suffer if they were investing directly in the underlying index or portfolio of stocks. It then seems intuitive that such products are attractive for loss averse investors. However, using a simple version of cumulative prospect theory, we show that these products are not attractive when the investor takes either the underlying index or the risk-free investment as the reference point. She always prefer an investment in the index or in the risk-free portfolio, depending on her coefficient of loss aversion.
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Bibliographic InfoPaper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2008-16.
Date of creation: 2008
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Structured finance; prospect theory; loss aversion; capital protection.;
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- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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