Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193521
Authors: 
Célérier, Claire
Vallée, Boris
Year of Publication: 
2016
Series/Report no.: 
ESRB Working Paper Series 14
Abstract: 
This study investigates the rationale for issuing complex securities to retail investors. We focus on a large market of investment products targeted exclusively at households: retail structured products in Europe. We develop an economic measure of product complexity in this market via a text analysis of 55,000 product payoff formulas. Over the 2002-2010 period, product complexity increases, risky products become more common, and product headline rates diverge from the prevailing interest rates as the latter decline. The complexity of a product is positively correlated with its headline rate and risk. Complex products appear more profitable to the banks distributing them, have a lower expost performance, and are more frequently sold by banks targeting low-income households. These empirical facts are consistent with banks strategically using product complexity to cater to yield-seeking households.
Subjects: 
Financial Complexity
Catering
Shrouding
Reaching for Yield
Household
JEL: 
I22
G1
D18
D12
Persistent Identifier of the first edition: 
ISBN: 
978-92-95081-41-3
Document Type: 
Working Paper
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