Investor behavior in the market for bank-issued structured products

This work investigates the trading behavior of retail investors in the largest European market place for bank-issued structured products – the European Warrant Exchange (EUWAX). Structured products are designed to grant retail investors access to a broad range of risk-return combinations, ranging from conservative investment products to high-risk leverage products. The focus of the analysis is on the question, how retail investors react to new information and which sources are taken into account when speculating and investing. The key finding is that retail investors actively trade on information, but their trading behavior exhibits various behavioral biases and irrational trading patterns such as herding, overconfidence as well as excessive optimism and risk-taking. In sum, the informational efficiency of retail investor trading in structured products is limited, which underscores the demand for increased efforts by policy makers and financial institutions to improve the financial literacy of retail investors.