What is your desire? Retail investor preferences in structured products. (8th March 2021)

• Record Type: Journal Article
• Authors: Baule, Rainer; Muenchhalfen, Patrick
• Is Part Of: Review of behavioral finance. Volume 14:Number 2(2022)
• Page Start: 197
• Page End: 222
• Publication Date: 2021-03-08
• Subjects: Discount certificates -- Key information documents -- PRIIPs regulation -- Retail banking -- Retail investors -- Structured financial products; Investments -- Psychological aspects -- Periodicals; Investments -- Decision making -- Periodicals; 332.605
• DOI: 10.1108/RBF-10-2020-0254
• Languages: English
• ISSNs: 1940-5979

Abstract

Abstract : Purpose: The authors evaluate the preferences of retail investors with regard to the investment in structured financial products. The purpose of the paper is an analysis of the relative importance of key product attributes namely the issuing bank, the product structure, the associated costs and the disclosed risk. Design/methodology/approach: The authors conduct a choice-based conjoint analysis, based on an online experiment. Participants judge their preferences for products which are presented by shortened key information documents according to the requirements of EU regulation. Findings: Investors consider the costs and the product structure to be most important, whereas the issuer and information on risk are of less interest. Their preferences depend on their (self-evaluated) expertise: while inexperienced retail investors concentrate on costs, experienced investors pay more attention to the product structure. Research limitations/implications: The study is limited to a subsegment of the market, the discount certificates. For these products, issuing banks gain insight into the attractiveness of their products. Furthermore, the study carries implications for regulators: since investors emphasize the costs in their decisions, an unbiased disclosure of costs should be enforced. Originality/value: While the recent literature has studied preferences for the investment in mutual funds, this is the first paper which directly analyzes the drivers of an investment in structured retail products.