Exploited by Complexity
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Topic: |
Exploited by Complexity |
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Time&Date: |
15:00-16:15 pm, 2020/4/10 (Friday) |
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Venue: |
Zoom Meeting ID: 797-219-7353 |
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Speaker: |
Dr. Cameron Peng (London School of Economics) |
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Abstract: |
Due to their complex features, structured financial products harm the average investor. But, can some investors benefit from this complexity? Using account-level transaction data of retail structured funds, we show that the rich (sophisticated) benefit from complexity at the expense of the poor (naive). The poor-to-rich wealth transfer that results from trading structured funds is substantially greater than the wealth transfer from trading simple, non-structured funds. In an event study, we further confirm that the wealth transfer can be partially attributed to investors’ differing responses to complexity. In particular, when a market crash triggers funds into a restructuring process and their prices are expected to shrink by half on a given day, the poor and naive subset of investors fail to respond effectively. |
