This paper examines the choices of retail investors in the market for structured financial products with a focus on implicit and explicit pricing components. We evaluate more than 72,000 single stock discount certificates on a daily basis from 2004 through 2008. The certificates are quoted an average of 0.58% above their fair value before the financial crisis, increasing to 1.24% during 2008. Although credit risk explains a major part (39%) of the certificates' overpricing, we find that issuer default risk does not have any influence on investors' product choices. Instead, retail investors are strongly influenced by irrational factors such as issuer and product familiarity. Finally, investors are found to make poor product choices (in terms of bid/ask spreads and markups over fair value), resulting in significant losses.
The system of unemployment insurance (UI) used in the United States has often been cited as a model for Europe. The American model illustrates that it is possible to create and maintain a UI system based on federal-state co-fi nancing that intensifi es during economic crises and thus reinforces protection and stabilisation. Central requirements and conditional funding can improve the aggregate protection and stabilisation capacity of the system. However, the architecture of the US system fi nancially incentivises states to organise retrenchment of their own efforts for UI, which in turn leads to a divergence of benefi t generosity and coverage levels. During the Great Recession, the federal government mitigated these incentives for retrenchment through minimum requirements attached to federal fi nancial intervention. With regards to the European unemployment re-insurance system debate, the US experience implies both positive and encourageing conclusions and cautionary lessons.
scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.