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The demand for structured products: an experimental approach

Author

Listed:
  • Adriana Gabriela Breaban

    () (LEE and Economics Department, Universitat Jaume I, Castellón, Spain)

  • Juan Carlos Matallín-Sáez

    () (Finance and Accounting Dept., Universitat Jaume I, Castellón, Spain)

  • Iván Barreda-Tarrazona

    () (LEE and Economics Department, Universitat Jaume I, Castellón, Spain)

  • Mª Rosario Balaguer-Franch

    () (Finance and Accounting Dept., Universitat Jaume I, Castellón, Spain)

Abstract

Structured investment funds showed an important growth in the mutual fund industry. We analyze this type of fund’s demand using the experimental methodology which gives us perfect control over the characteristics of the funds and the information provided to the investor. Different types of structured guaranteed funds, with fixed combinations of secured and additional benefits, are sequentially offered to university students who act as investors. Subjects also have the alternative possibility to buy bonds. Our results show that information available to investors, and particularly the order in which this information is presented, generates significant biases in their decision making which can have both positive and negative consequences on their financial behavior. In fact, when the investment alternatives are made easier to compare, too good to be true investment offers get more easily spotted, whereas funds whose performance shows an apparently positive trend result overvalued in comparison to bonds.

Suggested Citation

  • Adriana Gabriela Breaban & Juan Carlos Matallín-Sáez & Iván Barreda-Tarrazona & Mª Rosario Balaguer-Franch, 2012. "The demand for structured products: an experimental approach," Working Papers 2012/15, Economics Department, Universitat Jaume I, Castellón (Spain).
  • Handle: RePEc:jau:wpaper:2012/15
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    References listed on IDEAS

    as
    1. Simone Alfarano & Iván Barreda-Tarrazona & Eva Camacho-Cuena, 2006. "On the role of heterogeneous and imperfect information in a laboratory financial market," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 14(4), pages 417-433, December.
    2. Nicholas Bardsley & Robin Cubitt & Graham Loomes & Peter Moffatt & Chris Starmer & Robert Sugden, 2009. "Experimental Economics: Rethinking the Rules," Economics Books, Princeton University Press, edition 1, number 9074.
    3. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821.
    4. Simone Alfarano & Andrea Morone & Eva Camacho, 2011. "The role of public and private information in a laboratory financial market," Working Papers. Serie AD 2011-06, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    5. Kliger, Doron & Levy, Ori & Sonsino, Doron, 2003. "On absolute and relative performance and the demand for mutual funds--experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 52(3), pages 341-363, November.
    6. Ajay Khorana & Henri Servaes, 2011. "What Drives Market Share in the Mutual Fund Industry?," Review of Finance, European Finance Association, vol. 16(1), pages 81-113.
    7. Malhotra, Naresh K, 1982. " Information Load and Consumer Decision Making," Journal of Consumer Research, Oxford University Press, vol. 8(4), pages 419-430, March.
    8. Iván Barreda-Tarrazona & Juan Matallín-Sáez & Mª Balaguer-Franch, 2011. "Measuring Investors’ Socially Responsible Preferences in Mutual Funds," Journal of Business Ethics, Springer, vol. 103(2), pages 305-330, October.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    investor behavior; experiment; guaranteed investment fund.;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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