Journal article

Perceived Attractiveness of Structured Financial Products : The Role of Presentation Format and Reference Instruments

Published in:
  • Journal of Behavioral Finance. - 2020, vol. 21, no. 1, p. 78-102
English Structured equity-linked products hold a strong position in the asset universe in Europe although they are often considered to be overly complex. Their risk and return profi le is typically presented by simple payoff diagrams and verbal descriptions. We propose to complement the payoff diagrams with information on the payoff's probability distribution and study different presentation formats in an experimental setting with multiple investment decisions. We introduce a flexible framework for designing tailor-made products, which allows us to implement a part of the experiment as an interactive exploration in which the participants experience the risk-return tradeoff and the role of different features of structured products. We find that displaying probability histograms can have a strong effect on the perceived attractiveness of the products by revealing the loss probability. In contrast to common practice, our results suggest that the reference instrument shown in graphical displays should be risk-adjusted to match the risk of the structured product. Otherwise, a preference for lower risk might be misinterpreted as a preference for a specifi c return profi le. These fi ndings can be used to improve information documents for investors such as the "Key Information Document" required by European regulation.
Faculté des sciences économiques et sociales et du management
Département des sciences du Management
  • English
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