Asset complexity and the return gap

Pengjie Gao, Allen Hu, Peter Kelly, Cameron Peng and Ning Zhu

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Existing research finds that investors' returns vary with their wealth and level of sophistication. We bring a new perspective from the supply side by showing that return heterogeneity can be magnified as assets offered by the market become more complex. Using detailed account-level data, we examine the trading of B funds-complex, structured products in the Chinese market. During a 3-year market cycle, the return gap between the naive and sophisticated is an order-of-magnitude greater when trading B funds than when trading simple, non-structured funds. In an event study, we confirm that this disparity is driven by differences in investors' understanding of product complexity.

Keywords: complexity; return gap; wealth inequality; AAM requested (search for similar items in EconPapers)
JEL-codes: D30 G00 G11 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2024-03-01
New Economics Papers: this item is included in nep-cna
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Published in Review of Finance, 1, March, 2024, 28(2), pp. 511 - 550. ISSN: 1572-3097

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:122520

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