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Conference Paper: Household investments in structured financial products: pulled or pushed?

TitleHousehold investments in structured financial products: pulled or pushed?
Authors
KeywordsStructured products
Financial literacy
Ambiguity aversion
Issue Date2010
Citation
The 2010 Annual Meeting of the Financial Management Association (FMA), New York, N.Y., 20-23 October 2010. How to Cite?
AbstractStructured financial products including credit-linked notes and collateralized debt obligations were popular before the credit crisis but then delivered substantial loss to investors. Driver for investment decision in those products is key to understanding the fundamental causes of the crisis. Classical portfolio theory suggests that investors would shun away from unfamiliar financial products. This familiarity bias holds especially for unsophisticated household investors. The rapid growth of structured products market, the newest financial innovations, presents an opportune setting to test such conventional wisdoms. Using unique household investment data from Hong Kong, we show that product distributors' selling intensity is an important determinant for investors' allocation in structured products. On the other hand, more financially literate investors, who are more capable of optimizing asset allocation, include less structured products into their portfolios. Important determinants according to mean-variance analysis, such as product premium, have little explanatory power to investor's allocation decisions. Our finding suggests that investments in structured products prior to the credit crisis were more likely to be pulled by distributors. This paper demonstrates the importance of financial literacy for investment decisions.
DescriptionSession 175 - Crisis: Individual Investors
Persistent Identifierhttp://hdl.handle.net/10722/141032

 

DC FieldValueLanguage
dc.contributor.authorChang, ECen_US
dc.contributor.authorTang, DYen_US
dc.contributor.authorZhang, Men_US
dc.date.accessioned2011-09-23T06:23:49Z-
dc.date.available2011-09-23T06:23:49Z-
dc.date.issued2010en_US
dc.identifier.citationThe 2010 Annual Meeting of the Financial Management Association (FMA), New York, N.Y., 20-23 October 2010.en_US
dc.identifier.urihttp://hdl.handle.net/10722/141032-
dc.descriptionSession 175 - Crisis: Individual Investors-
dc.description.abstractStructured financial products including credit-linked notes and collateralized debt obligations were popular before the credit crisis but then delivered substantial loss to investors. Driver for investment decision in those products is key to understanding the fundamental causes of the crisis. Classical portfolio theory suggests that investors would shun away from unfamiliar financial products. This familiarity bias holds especially for unsophisticated household investors. The rapid growth of structured products market, the newest financial innovations, presents an opportune setting to test such conventional wisdoms. Using unique household investment data from Hong Kong, we show that product distributors' selling intensity is an important determinant for investors' allocation in structured products. On the other hand, more financially literate investors, who are more capable of optimizing asset allocation, include less structured products into their portfolios. Important determinants according to mean-variance analysis, such as product premium, have little explanatory power to investor's allocation decisions. Our finding suggests that investments in structured products prior to the credit crisis were more likely to be pulled by distributors. This paper demonstrates the importance of financial literacy for investment decisions.-
dc.languageengen_US
dc.relation.ispartofAnnual Meeting of the Financial Management Associationen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.subjectStructured products-
dc.subjectFinancial literacy-
dc.subjectAmbiguity aversion-
dc.titleHousehold investments in structured financial products: pulled or pushed?en_US
dc.typeConference_Paperen_US
dc.identifier.emailChang, EC: ecchang@business.hku.hken_US
dc.identifier.emailTang, DY: yjtang@hku.hken_US
dc.identifier.emailZhang, M: benzhang@hku.hk, rainozhang@gmail.com-
dc.identifier.authorityChang, EC=rp01050en_US
dc.identifier.authorityTang, DY=rp01096en_US
dc.description.naturepostprint-
dc.identifier.hkuros195861en_US
dc.description.otherThe 2010 Annual Meeting of the Financial Management Association (FMA), New York, N.Y., 20-23 October 2010.-

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