Ex-Post Structured Product Returns : Index Methodology and Analysis

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 US structured product investors. This paper augments the current literature by analyzing the ex-post returns of over Prods 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 autocallable 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 but individual structured products generally underperform simple alternative allocations to stocks and bonds. The observed underperformance of structured products is consistent with the significant issue date underpricing documented in the literature