Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/153631 
Authors: 
Year of Publication: 
2010
Series/Report no.: 
ECB Working Paper No. 1197
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
During the last decade, markets for covered warrants (bank-issued options) have flourished in Europe and Asia. In these markets, investors often face a choice between many instruments that differ only slightly from each other. Based on retail trades in call options on the German DAX index, this paper documents substantial price dispersion across securities that are close substitutes. Moreover, investors generally fail to identify attractively priced options. The results suggest that the observed product proliferation imposes a substantial search cost on investors even though the products are homogenous and their pricing is well understood. The search cost is estimated to average 1% of the amount invested, the same order of magnitude as the average spread.
Subjects: 
investor behavior
OTC derivatives
price dispersion
search costs
JEL: 
G11
G13
D83
Document Type: 
Working Paper

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