Investors’ Heterogeneous Preferences for Structured Financial Products in China: The Impact of Demographic Characteristics

Han, Xiyan; Liu, Wei

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Revista Brasileira de Gestão de Negócios

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Article • Rev. Bras. Gest. Neg. 24 (3) • Jul-Sep 2022 • https://doi.org/10.7819/rbgn.v24i3.4187 copy

Investors’ Heterogeneous Preferences for Structured Financial Products in China: The Impact of Demographic Characteristics

Authorship SCIMAGO INSTITUTIONS RANKINGS

Abstract

Purpose

Structured financial products (SPs) have become very popular with retail investors in recent years. Investors’ preferences play a critical role when investing in SPs. The objective of this study is to understand SP investment behavior by investigating Chinese investors’ heterogeneous preferences for choosing wealth management products (WMPs) with certain attributes.

Theoretical framework

Investors with different demographic characteristics show different preferences in their SP investments.

Design/methodology/approach

We employ the choice experiment (CE) method and examine preference heterogeneity using the multinomial logit (MNL) and the mixed logit (MXL) models.

Findings

(i) The attributes of small bank, minimum amount, non-guaranteed floating return and guaranteed floating return significantly affect the choice when purchasing WMPs. (ii) There are significant heterogeneous preferences for minimum amount. (iii) These four characters are the sources of heterogeneous preferences for minimum amount.

Practical & social implications of research

This information can contribute to understanding the heterogeneous preferences of investors, which can help in designing marketable WMPs to target different kinds of investors.

Originality/value

The main contribution of the research is it examines investors’ heterogeneous preferences for SPs. The study provides empirical evidence of which attributes of structured products significantly affect investor preferences. It also reveals which characteristics of investors affect their heterogeneous preferences.

Keywords:
Structured financial products; heterogeneous preferences; choice experiments; mixed logit model; behavior

Attribute	Description	Levels	Expected Sign
Bank	WMPs have financial risks. Different banks use different investment portfolios and types of WMPs. The differences are directly reflected in the performance of financial products.	Level 1: Large bank	base
		Level 2: Medium bank	base
		Level 2: Medium bank	-
		Level 3: Small bank	-
		Level 3: Small bank	-
Minimum amount	This is the threshold to purchase a bank’s WMPs. Generally, WMPs with a higher initial purchase amount have a higher yield. (Unit: 10 thousand RMB)	Level 1: 5	-
		Level 2: 10
		Level 3: 50
		Level 4: 100
Term	This is the duration until maturity of WMPs, which directly affects the yield on maturity. (Unit: days)	Level 1: 64	-
		Level 2: 93
		Level 3: 185
		Level 4: 365
Type	The return type of WMPs can be divided into fixed return WMPs and floating return WMPs. Floating return WMPs can be divided into guaranteed floating return WMPs and non-guaranteed floating return WMPs.	Level 1: Non-guaranteed floating return	-
		Level 2: Guaranteed floating return	-
		Level 2: Guaranteed floating return	-
		Level 3: Fixed return	-
		Level 3: Fixed return	base

Characteristics of WMPs	Option 1	Option 2	Option 3
Bank	Bank of Weifang	ICBC	Neither
Minimum amount	100	10
Term	185 days	365 days
Type	Guaranteed floating return	Non-guaranteed floating return
Yields to maturity	4.7	4.7

Characteristic Variable	Assignment	Mean	Standard Deviation
Gender	0=female;1=male	0.506	0.502
Age	1=under 18; 2=18~25; 3=26~30; 4=31~40; 5=41~50; 6=51~60; 7=above 60	3.442	1.171
Profession	1=student; 2=governor; 3=worker; 4=seller; 5=financial officer; 6=manager; 7=technical staff; 8=teacher; 9=counsellor; 10=financial staff; 11=others; 12=retired	6.462	3.883
Family annual revenue	1=under 20K; 2=20-50K; 3=50-100K; 4=100-200K; 5=200-500K; 6=More than 500K	3.051	1.598
Education	1=less than middle school; 2=high school or technical secondary school; 3=some college; 4=undergraduate; 5=graduate	3.397	1.216
Expenditure per month	1=0-1000RMB;2=1001-3000 RMB;3=3001-5000 RMB;4=5001-8000 RMB;5=8001-15000 RMB;6=above 15000 RMB	2.436	1.364
Mortgage	1=Yes;0=No	0.423	0.496

Variable	Coefficient	Standard Error
Bank: Medium Bank	-0.002	0.102
Bank: Small Bank	0.280***	0.098
Minimum Amount	-0.007***	0.001
Term	-0.000	0.000
Type: Non-guaranteed Floating Return	-0.338***	0.106
Type: Guaranteed Floating Return	-0.1774*	0.104
ASC	0.5889***	0.158
Adjusted Estrella R²	0.228
McFadden LRI R²	0.115
Likelihood Ratio	433.5

Variable		Coefficient	Standard Error
Random parameter variable
	Minimum Amount _M	-0.014***	0.004
	Minimum Amount _S	0.020***	0.007
Fixed parameter variable
	Bank: Medium Bank	0.039	0.110
	Bank: Small Bank	0.267**	0.109
	Term	-0.000	0.000
	Type: Non-guaranteed Floating Return	-0.267**	0.118
	Type: Guaranteed Floating Return	-0.221*	0.114
	ASC	0.547***	0.166
	Adjusted Estrella	0.231
	McFadden LRI	0.116
	Likelihood Ratio	438.14

Variable		Coefficient	Standard Error
Random parameter variable
	Minimum Amount _M	-0.068***	0.028
	Minimum Amount _S	0.048***	0.015
Fixed parameter variable
	Bank: Medium Bank	0.136	0.122
	Bank: Small Bank	0.266**	0.121
	Term	0.000	0.000
	Type: Non-guaranteed Floating Return	-0.137	0.133
	Type: Guaranteed Floating Return	-0.283**	0.124
	ASC	0.415**	0.192
	Minimum Amount × gender	0.005	0.005
	Minimum Amount × age	-0.008**	0.003
	Minimum Amount × profession	-0.000	0.001
	Minimum Amount × family annual revenue	0.006**	0.002
	Minimum Amount × education	0.015***	0.005
	Minimum Amount × expenditure	-0.007**	0.003
	Minimum Amount × mortgage	0.004	0.005
	Adjusted Estrella	0.273
	McFadden LRI	0.143
	Likelihood Ratio	537.17

Fundação Escola de Comércio Álvares Penteado Fundação Escola de Comércio Álvares Penteado, Av. da Liberdade, 532, 01.502-001 , São Paulo, SP, Brasil , (+55 11) 3272-2340 , (+55 11) 3272-2302, (+55 11) 3272-2302 - São Paulo - SP - Brazil
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[1] Responsible editor: Prof. Jose Ruiz Evaluation process: Double Blind Review Reviewers: Pablo Castañeda; Jaime Bastias