Research / Research Papers

Ex-post Structured Product Returns: Index Methodology and Analysis

Published in The Journal of Investing, Summer 2015, Vol. 24, No. 2: pp. 45-58.

2014-04-02

The academic and practitioner literature now includes numerous studies of the substantial issue date mispricing of structured products but there is no large scale study of the ex-post returns earned by structured product investors. This paper augments the current literature by analyzing the ex-post returns of nearly 18,000 individual structured products issued by 13 brokerage firms since 2007. We construct our structured product index and sub-indices for reverse convertibles, single-observation reverse convertibles, tracking securities, and auto-callable securities by valuing each structured product in our database each day.

The ex-post returns of US structured products are highly correlated with the returns of large capitalization equity markets in the aggregate and individual structured products generally underperform simple alternative allocations to stocks and bonds. The observed underperformance of structured products is consistent with the signifi cant issue date under-pricing documented in the literature.

By Geng Deng, Tim Dulaney, Tim Husson, Craig McCann, and Mike Yan

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Craig J. McCann
Principal703.246.9381
Mike Yan
Principal703.539.6780