Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • August 2017
  • Article
  • Quarterly Journal of Economics

Catering to Investors Through Security Design: Headline Rate and Complexity

By: Claire Célérier and Boris Vallée
  • Format:Print
ShareBar

Abstract

This paper 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 hypothesize that banks strategically use product complexity to cater to yield-seeking households by making product returns more salient and shrouding risk. We find four empirical results consistent with this view. First, we show that structured products with complex payoff formulas offer higher headline rates, and that they more frequently expose investors to a complete loss of their investment. We then document that banks are more inclined to issue high-headline-rate and more complex products in low-rate environments. Finally, we find that high-headline-rate and more complex products are more profitable for banks, and that their ex post performance is lower.

Keywords

Financial Complexity; Catering; Shrouding; Reaching For Yield; Investment

Citation

Célérier, Claire, and Boris Vallée. "Catering to Investors Through Security Design: Headline Rate and Complexity." Quarterly Journal of Economics 132, no. 3 (August 2017): 1469–1508.
  • Find it at Harvard

About The Author

Boris Vallee

Finance
→More Publications

More from the Authors

    • April 2022
    • Faculty Research

    Big Blue: Starting a Real Estate Firm

    By: Boris Vallée and Sean Bracken
    • 2022
    • Faculty Research

    Fintech to the (Worker) Rescue: Earned Wage Access and Employee Retention

    By: Jose Murillo, Boris Vallee and Dolly Yu
    • October 2021 (Revised April 2022)
    • Faculty Research

    The Big Blue: Starting a Real Estate Firm

    By: Boris Vallee and Nikodem Szumilo
More from the Authors
  • Big Blue: Starting a Real Estate Firm By: Boris Vallée and Sean Bracken
  • Fintech to the (Worker) Rescue: Earned Wage Access and Employee Retention By: Jose Murillo, Boris Vallee and Dolly Yu
  • The Big Blue: Starting a Real Estate Firm By: Boris Vallee and Nikodem Szumilo
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College