Innovation, Differentiation, and the Choice of an Underwriter: Evidence from Equity Linked Securities

Schroth, Enrique

doi:10.2139/ssrn.384820

Cited by 11 publications

(23 citation statements)

References 15 publications

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“…Product differentiation is positively related to market share at the 1 percent significance level, which is consistent with Schroth's (2006) findings. Firm size is also positive and significantly related to market share, which is consistent with evidence from Doerpinghaus and Gustavson (1999), who argue that larger insurers have an advantage in attracting customers in a relatively new, long‐tailed insurance line such as LTCI.…”

Section: Resultssupporting

confidence: 88%

“…They claim that this finding supports Van Horn's (1985) hypothesis that financial innovation must significantly reduce market friction costs to be successful. Schroth (2006) examines demand for new offerings of 50 types of equity-linked and derivative securities issued during the period 1985-2001. His proxy for demand is the ratio of market share for the innovative security underwritten to market share for all equity securities underwritten during the same period.…”

Section: Financial Product Innovation and Early Mover Advantagesmentioning

confidence: 99%

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Early Mover Advantages: Evidence From the Long‐Term Care Insurance Market

McShane¹,

Cox²,

Ge³

2012

J of Risk & Insurance

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Researchers frequently question whether financial firms benefit by developing new products because barriers to entry common to other industries generally do not exist. Studies of early mover advantages for new financial products provide mixed evidence at best. We find evidence of early mover advantages in the relatively young market for long‐term care insurance (LTCI) using data that allow broad testing of financial performance. Product differentiation, individual lines exposure, firm size, and traditional health insurance experience also affect financial performance.

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Section: Resultssupporting

confidence: 88%

Section: Financial Product Innovation and Early Mover Advantagesmentioning

confidence: 99%

Early Mover Advantages: Evidence From the Long‐Term Care Insurance Market

McShane¹,

Cox²,

Ge³

2012

J of Risk & Insurance

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show abstract

“…Thus the private incentive to develop the instrument in the first place may be quite low, even if its social benefit may be high. Herrera andSchroth (2001 and and Schroth (2003) show that in practice financial institutions are able to retain some of the profits from their innovations despite the absence of patents, but imitation and the erosion of the innovators' profits are relatively fast.…”

Section: Financial Innovation In Generalmentioning

confidence: 99%

The case for GDP-indexed bonds

2004

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"This paper seeks to revive the case for countries to insure against economic growth slowdowns by issuing bonds indexed to the rate of growth of GDP. We show that GDP-indexed bonds could provide substantial benefits in reducing the likelihood of default crises and allowing countries to avoid pro-cyclical fiscal policies. We simulate the effects of GDP-indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood of debt/GDP paths becoming explosive. The insurance premium would likely be small, because cross-country comovement of GDP growth rates is low and cross-country GDP growth risk is thus largely diversifiable for an investor holding a portfolio of GDP-indexed bonds. Potential obstacles to the emergence of a market for these bonds include the verifiability of GDP data, the trade-off between insurance and moral hazard, and the need for liquidity. Theory and past experience suggest that financial innovation often requires official intervention and its timing and form are difficult to predict. We discuss institutional fixes and suggest an approach for attempting to start up a market." Copyright � CEPR, CES, MSH, 2004..

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“…In particular, it explains why innovators might tend to be larger and less profitable (Lerner (2006)). It also suggests an explanation for why financial innovators not only fail to deter imitators, but even actively seek out syndicated release partners for new securities (Tufano (1989), Lerner (2006), Schroth (2006), Herrera and Schroth (2011)), rather than attempting to exclude them with barriers to entry. This paper is not the first to apply an epidemiological model to an economic problem.…”

Section: Introductionmentioning

confidence: 99%

The development and spread of financial innovations

Hull

2016

Quantitative Economics

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I study financial product innovation in a model with two classes of agents: "sophisticated" and "unsophisticated." Unsophisticated agents are hit with frictions that lower the return to a conventional asset they hold. Sophisticated agents construct financial innovations that are perfect substitutes for the conventional asset, but are not subject to the friction. In the absence of complete information, unsophisticated agents learn about innovations through a contagion process, as they encounter competitors who have already adopted them. The model yields two equilibria: in one, the innovation persists; in the other, it disappears. Only one equilibrium is stable, and this is determined by the strength of the contagion and by early strategic interactions between sophisticated agents. The model suggests mechanisms for several empirical regularities in the financial innovation literature. Additionally, two applications demonstrate how to estimate the contagion parameter with a short time series of data, and how to use it to predict whether a financial innovation will spread.

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Innovation, Differentiation, and the Choice of an Underwriter: Evidence from Equity Linked Securities

Cited by 11 publications

References 15 publications

Early Mover Advantages: Evidence From the Long‐Term Care Insurance Market

Early Mover Advantages: Evidence From the Long‐Term Care Insurance Market

The case for GDP-indexed bonds

The development and spread of financial innovations

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