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The Investor in Structured Retail Products: Marketing Driven or Gambling Oriented?

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  • Margaria Abreu
  • Victor Mendes

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, that product complexity is a way to complete markets 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. Moreover, results also show that SRP trading activity cannot be dissociated from aggressive marketing practices. Key Words: structured retail products; behavioral finance; overconfidence; gambling; marketing

Suggested Citation

  • Margaria Abreu & Victor Mendes, 2017. "The Investor in Structured Retail Products: Marketing Driven or Gambling Oriented?," Working Papers Department of Economics 2017/19, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    • Handle: RePEc:ise:isegwp:wp192017
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    Cited by:

    1. Margarida Abreu & Victor Mendes, 2018. "Do Individual Investors Trade Differently in Different Markets?," Working Papers REM 2018/26, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    2. 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.
    3. Ana Brochado & Margarida Abreu & Victor Mendes, 2020. "Correlates of Gambling," Economics Bulletin, AccessEcon, vol. 40(1), pages 456-462.
    4. Christian Bauer & Marc Oliver Rieger, 2021. "The Slow Death of Capital Protection," JRFM, MDPI, vol. 14(7), pages 1-8, July.

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    More about this item

    Keywords

    structured retail products; behavioral finance; overconfidence; gambling; marketing;
    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
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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