Structured product investment behavior in low-interest rate environments

Hirotaka Fushiya, Tomoki Kitamura and Munenori Nakasato

Journal of Risk Finance, 2021, vol. 22, issue 2, 113-129

Abstract: Purpose - This study aims to investigate the impact of interest rates, the underlying asset and investment experience on the investment behavior of Japanese retail investors toward structured products (SPs). Design/methodology/approach - Three treatments are constructed through internet-based survey experiments: interest rate, underlying asset framing and investment experience treatments. The interest rate treatment includes high- and low-interest rate environments. The underlying asset framing treatment includes equity and foreign exchange rates for the SP. The investment experience treatment includes experienced and inexperienced respondents for SPs. Findings - The main finding of this study concerns the effect of the interaction between low-interest rates and investment experience. Specifically, SP-experienced investors tend to choose SPs in a low-interest rate environment and prefer equity-linked SPs, even though such SPs are overpriced. This finding is useful for financial regulators in formulating policies that protect retail SP investors in low-interest rate environments worldwide. Originality/value - This study is the first to measure the sensitivities of investment behavior regarding the relative attractiveness of SPs to low-risk straight bonds, given interest rates, the underlying asset and investment experience. It provides evidence to support the development of SP regulations.

Keywords: Investment decision; Structured products; Investment experience; Low-interest rate environment; D14; G11; G40 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jrfpps:jrf-12-2019-0232

DOI: 10.1108/JRF-12-2019-0232

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