Asset Complexity and the Return Gap*

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

Review of Finance, 2024, vol. 28, issue 2, 511-550

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 (search for similar items in EconPapers)
JEL-codes: D3 G11 G5 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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