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The order flow of discount certificates and issuer pricing behavior

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  • Baule, Rainer

Abstract

We analyze the order flow of discount certificates, its dependence on product age, and the implications for issuer pricing behavior. Based on a unique data set of exchange trades and issuer quotes, we find that for tax reasons investors prefer to buy products that mature in just over 1Â year from the date of purchase. Furthermore, they tend to sell products back preferably close to maturity. These patterns in the trade direction allow us to separate the issuer pricing behavior from (i) the life cycle and (ii) the order flow. We find evidence that 7 out of 11 issuers anticipate the order flow and price in an additional margin in phases of positive expected net sales.

Suggested Citation

  • Baule, Rainer, 2011. "The order flow of discount certificates and issuer pricing behavior," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3120-3133, November.
  • Handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:3120-3133
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    References listed on IDEAS

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    Cited by:

    1. Oliver Entrop & Michael McKenzie & Marco Wilkens & Christoph Winkler, 2016. "The performance of individual investors in structured financial products," Review of Quantitative Finance and Accounting, Springer, vol. 46(3), pages 569-604, April.
    2. Schertler, Andrea, 2016. "Pricing effects when competitors arrive: The case of discount certificates in Germany," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 84-99.
    3. Korn, Olaf & Krischak, Paolo & Theissen, Erik, 2017. "Illiquidity transmission from spot to futures markets," CFR Working Papers 14-10, University of Cologne, Centre for Financial Research (CFR).
    4. Stephan Meyer & Sebastian Schroff & Christof Weinhardt, 2014. "(Un)skilled leveraged trading of retail investors," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(2), pages 111-138, May.
    5. Entrop, Oliver & Fischer, Georg & McKenzie, Michael & Wilkens, Marco & Winkler, Christoph, 2016. "How does pricing affect investors’ product choice? Evidence from the market for discount certificates," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 195-215.
    6. Baller, Stefanie & Entrop, Oliver & McKenzie, Michael & Wilkens, Marco, 2016. "Market makers’ optimal price-setting policy for exchange-traded certificates," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 206-226.

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