Title: The Impact of Greed and Experience on Investors’ Returns and Banks’ Margins: Evidence from Short-Term Exchange-Traded Retail Products
Abstract: This paper considers the realized returns of individual investors in warrants and leverage certificates. First, we derive a general formula that analytically decomposes the return into several economically meaningful components that are related to investor’s trading behavior and the issuers’ price-setting strategy. Second, we use a large trade dataset to analyze returns along these components and also link them to investors’ risk taking strategy. Our main findings are threefold: (i) The overall performance is poor. (ii) Investors show neutral timing skills, while the main performance driver is the issuers’ price-setting. (iii) Higher risk taking by investors diminishes the performance further. Our results imply that retail investors do not achieve a pecuniary benefit from the considered financial innovations.
Publication Year: 2012
Publication Date: 2012-01-01
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 5
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