What Drives Financial Complexity? A Look into the Retail Market for Structured Products

Célérier, Claire; Vallée, Boris

doi:10.2139/ssrn.2289890

Cited by 28 publications

(37 citation statements)

References 47 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…No mention is made of possible political interference, even though all banks in Greece suffered from the same home bias in GGBs. The report was leaked to the press (one link provided in the references) right after it was submitted by A & M. 19 Celerier and Vallee (2014) measure the complexity of structured products in the retail financial market in Europe since 2002 and find a steady increase in financial complexity that is more prevalent among distributors with a less sophisticated clientele. These findings are consistent with the experience in Cyprus.…”

Section: Responses and Potential Errorsmentioning

confidence: 99%

Cyprus: from boom to bail-in

Michaelides

2014

Econ Policy

View full text Add to dashboard Cite

This is a case study of how a country nearly reached bankruptcy in March 2013, within five years of entering the eurozone. The magnitude of the requested assistance is extremely large relative to GDP (100%) and studying this event provides useful lessons for avoiding such crises in the future. The crisis resulted from a worsening European economic environment (especially in Greece), bad choices with regards to public finances, weak corporate governance within the local banking sector, inadequate and/or difficult regulation of cross-border banking, worsening competitiveness, and bad political decisions at the European and, especially, the local (Cypriot) level. Local politics, reflected in short-term political calculations and/or inadequate understanding of the magnitude of the crisis, delayed corrective action for 18 months until election time, making a bad situation almost impossible to deal with. Overconfidence can be one behavioural explanation for why local politicians ignored the dramatic costs of inaction.--Alexander Michaelides

show abstract

Section: Responses and Potential Errorsmentioning

confidence: 99%

Cyprus: from boom to bail-in

Michaelides

2014

Econ Policy

View full text Add to dashboard Cite

show abstract

“…Empirical evidence shows that intentional obfuscation does occur (Célérier & Vallée, 2013;Ellison & Ellison, 2009;Hossain & Morgan, 2007;McDonald & Wren, 2013;Muir, Seim, & Vitorino, 2013;Wenzel, 2013;Woodward & Hall, 2010). Books, reviews, and policy papers explore how firms manipulate and deceive consumers who "search too little, become confused comparing prices" and fail to switch from their default options (Akerlof & Shiller, 2015;Beales, Craswell, & Salop, 1981;Garrod, Hviid, Loomes, & Price, 2009;Grubb, 2015;Spiegler, 2015).…”

Section: Literaturementioning

confidence: 99%

Choosing not to compete: Can firms maintain high prices by confusing consumers?

Crosetto

Gaudeul

2017

Economics Manag Strategy

View full text Add to dashboard Cite

Firms with very similar products often present their products in different ways. This makes it difficult for consumers to find out which product fits their needs best, or which one is the cheapest. Why is there no convergence toward common ways to present products? Is it possible for firms to maintain high prices by confusing consumers? We run a market experiment to investigate those questions. In our market, firms choose how to present their products in addition to choosing their price. We find that firms maintain different ways to present their products and that this allows them to maintain high prices. This behavior is not consistent with competitive behavior, such as when firms adopt best responses to each other, imitate the most successful firm, or learn the best strategy over time. Rather, our results are only consistent with cooperation between firms. Firms cooperate by not imitating the way other firms present their products. Cooperation is maintained by the threat of tough competition if a firm makes its product easy to compare with others. Firms are all the more likely to maintain such cooperation if their products do not actually differ much. This is because in that case, maintaining differences in the presentation of their products is the only way to maintain profits.

show abstract

“…The wrong forward price on an illiquid part of the curve posed a significant pricing risk, and mistaking the joint dynamics of stock prices and dividends posed a significant challenge for ongoing risk management. Célérier and Vallée [2013] examined a sample of 55,000 retail structured products issued in Europe for the period [2002][2003][2004][2005][2006][2007][2008] and found that the average product maturity was 4.2 years. The average has declined in recent years as income-generating (i.e., coupon) products have become more popular relative to capital guaranteed products.…”

Section: Institutional Backgroundmentioning

confidence: 99%

“…However, products issued to European retail clients benefitted from greater penetration and acceptance. For example, Pearson and Henderson [2011] found approximately $2.5 billion of products issued in the United States in 1999, whereas Célérier and Vallée [2013] documented approximately €20 billion of retail structured products issued in Europe in 1999. The European market was more than 10 times the size of the U.S. market over the formative period of dividend swaps.…”

Section: Institutional Backgroundmentioning

confidence: 99%