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Salient Attributes and Household Demand for Security Designs

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  • Vokata, Petra

    (Ohio State U)

Abstract

Using a large database of complex securities, I study how salient attributes of security design distort household investment decisions. I show banks add non-standard (fine-print) conditions to artificially increase advertised rates of headline return and downside protection-a phenomenon I term "enhancement." Enhancement increases headline returns by 11 percentage points, on average, but does not increase realized returns. Flexibly controlling for all other product attributes and using high-frequency shocks to structuring costs of enhancement for identification, I find demand is highly elastic to enhancement. Enhancement is costly to investors: a one standard deviation decrease implies savings of more than $1 billion in fees.

Suggested Citation

  • Vokata, Petra, 2023. "Salient Attributes and Household Demand for Security Designs," Working Paper Series 2023-07, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    • Handle: RePEc:ecl:ohidic:2023-07
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    Cited by:

    1. Aleksi Pitkäjärvi & Matteo Vacca, 2024. "Striking Out: Biases and Losses of Retail Option Traders," Tinbergen Institute Discussion Papers 24-039/IV, Tinbergen Institute.

    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G50 - Financial Economics - - Household Finance - - - General

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