Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5091382 | Journal of Banking & Finance | 2007 | 18 Pages |
Abstract
We apply cumulative prospect theory and hedonic framing to evaluate discount reverse convertibles (DRCs) and reverse convertible bonds (RCBs) as important examples of structured products from a boundedly rational investor's point of view. While common expected utility theory would also conclude that DRCs and RCBs are of interest to investors with moderate return expectations and underestimated stock return volatility, that theory would overestimate the market success of DRCs and underestimate that of RCBs in comparison to a situation with bounded rationality. Hedonic framing and relatively low subjectively felt competence levels of investors are decisive for the demand for RCBs.
Keywords
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Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Wolfgang Breuer, Achim Perst,