Are Structured Products Good Investments?

Structured notes are complex investment products with returns linked to an underlying asset. They are often marketed based on high coupon yields, downside protection, or some combination. The payoffs of structured notes can seem like a free lunch, but banks are not selling them to you because they’re your friend. When you’re having dinner with lions you have to make sure you’re at the table, not on the menu. ------------------ Follow Ben Felix on Twitter:   / benjaminwfelix   Visit Rational Reminder: https://rationalreminder.ca/ Join the Rational Reminder Community: https://community.rationalreminder.ca/ Follow the Rational Reminder on: Twitter:   / rationalremind   Instagram:   / rationalreminder   Visit PWL Capital: https://www.pwlcapital.com/ Follow PWL Capital on: Twitter:   / pwlcapital   Facebook:   / pwlcapital   LinkedIn:   / pwl-capital   You can find the Rational Reminder podcast on Google Podcasts: https://www.google.com/podcasts?feed=... Apple Podcasts: https://itunes.apple.com/ca/podcast/t... Spotify Podcasts: https://open.spotify.com/show/6RHWTH9... ------------------ Sources: Cochrane, J. H. (2022). Portfolios for long-term investors. Review of Finance, 26(1), 1–42. https://doi.org/10.1093/rof/rfab038 Gabaix, X., & Laibson, D. (2006). Shrouded attributes, consumer myopia, and information suppression in competitive markets. The Quarterly Journal of Economics, 121(2), 505–540. https://doi.org/10.1162/qjec.2006.121... Carlin, B. I. (2009). Strategic price complexity in retail financial markets☆. Journal of Financial Economics, 91(3), 278–287. https://doi.org/10.1016/j.jfineco.200... Henderson, B. J., & Pearson, N. D. (2011). The dark side of financial innovation: A case study of the pricing of a retail financial product☆. Journal of Financial Economics, 100(2), 227–247. https://doi.org/10.1016/j.jfineco.201... Deng, G., Guedj, I., Mallett, J., & McCann, C. (2011). The anatomy of principal-protected absolutereturn barrier notes. The Journal of Derivatives, 19(2), 61–70. https://doi.org/10.3905/jod.2011.19.2... Bernard, C., Boyle, P. P., & Gornall, W. (2011). Locally capped investment products and the retailinvestor. The Journal of Derivatives, 18(4), 72–88. https://doi.org/10.3905/jod.2011.18.4... Deng, G., Dulaney, T., Husson, T., McCann, C., & Yan, M. (2015). Ex post structured-product returns: Index methodology and analysis. The Journal of Investing, 24(2), 45–58. https://doi.org/10.3905/joi.2015.24.2... Célérier, C., & Vallée, B. (2017). Catering to Investors Through Security Design: Headline Rate and Complexity*. The Quarterly Journal of Economics, 132(3), 1469–1508. https://doi.org/10.1093/qje/qjx007 Vokata, P. (2021). Engineering lemons. Journal of Financial Economics, 142(2), 737–755. https://doi.org/10.1016/j.jfineco.202... Chesney, Marc and Fattinger, Felix and Krakow, Nils Jonathan and Straumann, Simon, Interest Rates, Competition, and Complexity: Demand and Supply of Retail Financial Products (May 15, 2022). Available at SSRN: https://ssrn.com/abstract=3499660 or http://dx.doi.org/10.2139/ssrn.3499660 Henderson, B. J., Pearson, N. D., & Wang, L. (2020). Pre-trade hedging: Evidence from the issuance of retail structured products. Journal of Financial Economics, 137(1), 108–128. https://doi.org/10.1016/j.jfineco.202... Ammann, M., Arnold, M., & Straumann, S. (2023). Pricing, issuance volume, and design of innovative securities: The role of investor information. Journal of Financial Intermediation, 55, 101041. https://doi.org/10.1016/j.jfi.2023.10... Goetzmann, W., Kim, D., & Shiller, R. (2016). Crash beliefs from investor surveys (No. w22143; p. w22143). National Bureau of Economic Research. https://doi.org/10.3386/w22143 Henderson, B. J., Pearson, N. D., & Wang, L. (2023). Retail derivatives and sentiment: A sentiment measure constructed from issuances of retail structured equity products. The Journal of Finance, 78(4), 2365–2407. https://doi.org/10.1111/jofi.13253 Gennaioli, N., Shleifer, A., & Vishny, R. (2012). Neglected risks, financial innovation, and financial fragility. Journal of Financial Economics, 104(3), 452–468. https://doi.org/10.1016/j.jfineco.201... Sec. Gov | regulators working together to serve investors. (n.d.). Retrieved July 19, 2023, from https://www.sec.gov/news/speech/regul... Das, S. R., & Statman, M. (2013). Options and structured products in behavioral portfolios. Journal of Economic Dynamics and Control, 37(1), 137–153. https://doi.org/10.1016/j.jedc.2012.0...