Abstract

The market for structured retail products (SRPs) has grown rapidly in sales volume and complexity over the last two decades. I examine extrapolative expectation to explain this phenomenon. Products with higher past returns have experienced higher sales growth and this effect is stronger for more complex products, leading to increasing popularity of more complex products that have delivered higher returns. While I find some evidence that investors discipline exploitative financial intermediaries and the number of SRP-related misconduct cases has significantly declined, my results suggest that investors can hurt themselves by aggressively chasing past returns of complex and risky products that do not predict future returns.

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• Keyword(s):
• marketing 126

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