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Asset complexity and the return gap

Gao, Pengjie, Hu, Allen, Kelly, Peter, Peng, Cameron and Zhu, Ning (2024) Asset complexity and the return gap. Review of Finance, 28 (2). 511 - 550. ISSN 1572-3097

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Identification Number: 10.1093/rof/rfad027


Existing research finds that investors' returns vary with their wealth and level of sophistication. We bring a new perspective from the supply side by showing that return heterogeneity can be magnified as assets offered by the market become more complex. Using detailed account-level data, we examine the trading of B funds-complex, structured products in the Chinese market. During a 3-year market cycle, the return gap between the naive and sophisticated is an order-of-magnitude greater when trading B funds than when trading simple, non-structured funds. In an event study, we confirm that this disparity is driven by differences in investors' understanding of product complexity.

Item Type: Article
Official URL:
Additional Information: © 2023 The Author(s)
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D3 - Distribution > D30 - General
G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G0 - General > G00 - General
Date Deposited: 28 Mar 2024 11:33
Last Modified: 15 May 2024 18:57

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