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Are Structured Products Good Investments?
Structured notes are complex investment products with returns linked to an underlying asset. They are often marketed based on high coupon yields, downside protection, or some combination.
The payoffs of structured notes can seem like a free lunch, but banks are not selling them to you because they’re your friend. When you’re having dinner with lions you have to make sure you’re at the table, not on the menu.
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Follow Ben Felix on
- Twitter: https://twitter.com/benjaminwfelix
Visit Rational Reminder: https://rationalreminder.ca/
Join the Rational Reminder Community: https://community.rationalreminder.ca/
Follow the Rational Reminder on:
- Twitter: https://www.twitter.com/RationalRemind
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Follow PWL Capital on:
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You can find the Rational Reminder podcast on
Google Podcasts:
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Apple Podcasts:
https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582?mt=2
Spotify Podcasts:
https://open.spotify.com/show/6RHWTH9iW7hdnA7eAg7ukO?si=hjZNfLKuSjSeWX38GPqhVA
------------------
Sources:
Cochrane, J. H. (2022). Portfolios for long-term investors. Review of Finance, 26(1), 1–42. https://doi.org/10.1093/rof/rfab038
Gabaix, X., & Laibson, D. (2006). Shrouded attributes, consumer myopia, and information suppression in competitive markets. The Quarterly Journal of Economics, 121(2), 505–540. https://doi.org/10.1162/qjec.2006.121.2.505
Carlin, B. I. (2009). Strategic price complexity in retail financial markets☆. Journal of Financial Economics, 91(3), 278–287. https://doi.org/10.1016/j.jfineco.2008.05.002
Henderson, B. J., & Pearson, N. D. (2011). The dark side of financial innovation: A case study of the pricing of a retail financial product☆. Journal of Financial Economics, 100(2), 227–247. https://doi.org/10.1016/j.jfineco.2010.12.006
Deng, G., Guedj, I., Mallett, J., & McCann, C. (2011). The anatomy of principal-protected absolutereturn barrier notes. The Journal of Derivatives, 19(2), 61–70. https://doi.org/10.3905/jod.2011.19.2.061
Bernard, C., Boyle, P. P., & Gornall, W. (2011). Locally capped investment products and the retailinvestor. The Journal of Derivatives, 18(4), 72–88. https://doi.org/10.3905/jod.2011.18.4.072
Deng, G., Dulaney, T., Husson, T., McCann, C., & Yan, M. (2015). Ex post structured-product returns: Index methodology and analysis. The Journal of Investing, 24(2), 45–58. https://doi.org/10.3905/joi.2015.24.2.045
Célérier, C., & Vallée, B. (2017). Catering to Investors Through Security Design: Headline Rate and Complexity*. The Quarterly Journal of Economics, 132(3), 1469–1508. https://doi.org/10.1093/qje/qjx007
Vokata, P. (2021). Engineering lemons. Journal of Financial Economics, 142(2), 737–755. https://doi.org/10.1016/j.jfineco.2021.04.035
Chesney, Marc and Fattinger, Felix and Krakow, Nils Jonathan and Straumann, Simon, Interest Rates, Competition, and Complexity: Demand and Supply of Retail Financial Products (May 15, 2022). Available at SSRN: https://ssrn.com/abstract=3499660 or http://dx.doi.org/10.2139/ssrn.3499660
Henderson, B. J., Pearson, N. D., & Wang, L. (2020). Pre-trade hedging: Evidence from the issuance of retail structured products. Journal of Financial Economics, 137(1), 108–128. https://doi.org/10.1016/j.jfineco.2020.02.004
Ammann, M., Arnold, M., & Straumann, S. (2023). Pricing, issuance volume, and design of innovative securities: The role of investor information. Journal of Financial Intermediation, 55, 101041. https://doi.org/10.1016/j.jfi.2023.101041
Goetzmann, W., Kim, D., & Shiller, R. (2016). Crash beliefs from investor surveys (No. w22143; p. w22143). National Bureau of Economic Research. https://doi.org/10.3386/w22143
Henderson, B. J., Pearson, N. D., & Wang, L. (2023). Retail derivatives and sentiment: A sentiment measure constructed from issuances of retail structured equity products. The Journal of Finance, 78(4), 2365–2407. https://doi.org/10.1111/jofi.13253
Gennaioli, N., Shleifer, A., & Vishny, R. (2012). Neglected risks, financial innovation, and financial fragility. Journal of Financial Economics, 104(3), 452–468. https://doi.org/10.1016/j.jfineco.2011.05.005
Sec. Gov | regulators working together to serve investors. (n.d.). Retrieved July 19, 2023, from https://www.sec.gov/news/speech/regulators-working-together-serve-investors
Das, S. R., & Statman, M. (2013). Options and structured products in behavioral portfolios. Journal of Economic Dynamics and Control, 37(1), 137–153. https://doi.org/10.1016/j.jedc.2012.07.004
Видео Are Structured Products Good Investments? канала Ben Felix
The payoffs of structured notes can seem like a free lunch, but banks are not selling them to you because they’re your friend. When you’re having dinner with lions you have to make sure you’re at the table, not on the menu.
------------------
Follow Ben Felix on
- Twitter: https://twitter.com/benjaminwfelix
Visit Rational Reminder: https://rationalreminder.ca/
Join the Rational Reminder Community: https://community.rationalreminder.ca/
Follow the Rational Reminder on:
- Twitter: https://www.twitter.com/RationalRemind
- Instagram: https://www.instagram.com/rationalreminder/
Visit PWL Capital: https://www.pwlcapital.com/
Follow PWL Capital on:
- Twitter: https://twitter.com/PWLCapital
- Facebook: https://www.facebook.com/PWLCapital
- LinkedIn: https://www.linkedin.com/company/pwl-capital/
You can find the Rational Reminder podcast on
Google Podcasts:
https://www.google.com/podcasts?feed=aHR0cHM6Ly9yYXRpb25hbHJlbWluZGVyLmxpYnN5bi5jb20vcnNz
Apple Podcasts:
https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582?mt=2
Spotify Podcasts:
https://open.spotify.com/show/6RHWTH9iW7hdnA7eAg7ukO?si=hjZNfLKuSjSeWX38GPqhVA
------------------
Sources:
Cochrane, J. H. (2022). Portfolios for long-term investors. Review of Finance, 26(1), 1–42. https://doi.org/10.1093/rof/rfab038
Gabaix, X., & Laibson, D. (2006). Shrouded attributes, consumer myopia, and information suppression in competitive markets. The Quarterly Journal of Economics, 121(2), 505–540. https://doi.org/10.1162/qjec.2006.121.2.505
Carlin, B. I. (2009). Strategic price complexity in retail financial markets☆. Journal of Financial Economics, 91(3), 278–287. https://doi.org/10.1016/j.jfineco.2008.05.002
Henderson, B. J., & Pearson, N. D. (2011). The dark side of financial innovation: A case study of the pricing of a retail financial product☆. Journal of Financial Economics, 100(2), 227–247. https://doi.org/10.1016/j.jfineco.2010.12.006
Deng, G., Guedj, I., Mallett, J., & McCann, C. (2011). The anatomy of principal-protected absolutereturn barrier notes. The Journal of Derivatives, 19(2), 61–70. https://doi.org/10.3905/jod.2011.19.2.061
Bernard, C., Boyle, P. P., & Gornall, W. (2011). Locally capped investment products and the retailinvestor. The Journal of Derivatives, 18(4), 72–88. https://doi.org/10.3905/jod.2011.18.4.072
Deng, G., Dulaney, T., Husson, T., McCann, C., & Yan, M. (2015). Ex post structured-product returns: Index methodology and analysis. The Journal of Investing, 24(2), 45–58. https://doi.org/10.3905/joi.2015.24.2.045
Célérier, C., & Vallée, B. (2017). Catering to Investors Through Security Design: Headline Rate and Complexity*. The Quarterly Journal of Economics, 132(3), 1469–1508. https://doi.org/10.1093/qje/qjx007
Vokata, P. (2021). Engineering lemons. Journal of Financial Economics, 142(2), 737–755. https://doi.org/10.1016/j.jfineco.2021.04.035
Chesney, Marc and Fattinger, Felix and Krakow, Nils Jonathan and Straumann, Simon, Interest Rates, Competition, and Complexity: Demand and Supply of Retail Financial Products (May 15, 2022). Available at SSRN: https://ssrn.com/abstract=3499660 or http://dx.doi.org/10.2139/ssrn.3499660
Henderson, B. J., Pearson, N. D., & Wang, L. (2020). Pre-trade hedging: Evidence from the issuance of retail structured products. Journal of Financial Economics, 137(1), 108–128. https://doi.org/10.1016/j.jfineco.2020.02.004
Ammann, M., Arnold, M., & Straumann, S. (2023). Pricing, issuance volume, and design of innovative securities: The role of investor information. Journal of Financial Intermediation, 55, 101041. https://doi.org/10.1016/j.jfi.2023.101041
Goetzmann, W., Kim, D., & Shiller, R. (2016). Crash beliefs from investor surveys (No. w22143; p. w22143). National Bureau of Economic Research. https://doi.org/10.3386/w22143
Henderson, B. J., Pearson, N. D., & Wang, L. (2023). Retail derivatives and sentiment: A sentiment measure constructed from issuances of retail structured equity products. The Journal of Finance, 78(4), 2365–2407. https://doi.org/10.1111/jofi.13253
Gennaioli, N., Shleifer, A., & Vishny, R. (2012). Neglected risks, financial innovation, and financial fragility. Journal of Financial Economics, 104(3), 452–468. https://doi.org/10.1016/j.jfineco.2011.05.005
Sec. Gov | regulators working together to serve investors. (n.d.). Retrieved July 19, 2023, from https://www.sec.gov/news/speech/regulators-working-together-serve-investors
Das, S. R., & Statman, M. (2013). Options and structured products in behavioral portfolios. Journal of Economic Dynamics and Control, 37(1), 137–153. https://doi.org/10.1016/j.jedc.2012.07.004
Видео Are Structured Products Good Investments? канала Ben Felix
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