Illuminating the Dark Side of Financial Innovation: The Role of Investor Information

Manuel Ammann, Marc Arnold () and Simon Straumann

No 1704, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: This paper investigates the impact of investor information on financial innovation. We identify specific channels through which issuers of financially engineered products exploit retail investors by using their privileged access to information. Our results imply that imperfect investor information regarding volatility and dividends is crucial to explain the pricing and design of financially engineered products. We confirm our conjecture by exploiting a discontinuity in issuers' informational advantage. The insights are of systemic importance because they suggest that product issuers' behavior in the financial innovation market aggravates investor information problems of the financial system.

Keywords: Structured Products; Investor Information; Financial Innovation (search for similar items in EconPapers)
JEL-codes: D8 G34 M52 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2017-03
New Economics Papers: this item is included in nep-ban and nep-ino
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2017:04

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