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Risk misperceptions of structured financial products with worst-of payout characteristics revisited

Nobuyuki Hanaki ()

Journal of Behavioral and Experimental Finance, 2022, vol. 33, issue C

Abstract: In this paper, we reexamine a bias revealed by Kunz et al. (2017) regarding structured financial products known as barrier reverse convertibles (BRCs) with worst-of payout characteristics. Namely, using a nonincentivized survey of investor risk perceptions, Kunz et al. (2017) found that when safe assets are included with risky assets to provide the underlying assets of a BRC, investors erroneously perceive a lower risk for the BRC when in fact it becomes higher. We confirm the same bias among student participants using the results of an incentivized experiment. However, we do not observe any similar bias among finance professionals.

Keywords: Experiment; Barrier reverse convertibles (search for similar items in EconPapers)
JEL-codes: C99 G11 G41 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:33:y:2022:i:c:s2214635021001489

DOI: 10.1016/j.jbef.2021.100604

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