Financial Innovation and Stock Market Participation

This paper analyzes the development of retail structured products, an innovative class of complex financial instruments with option-like features, on a large administrative panel of Swedish households. We document the emergence of this asset class and its impact on household financial decisions. We report that investors in structured products face different socioeconomic circumstances than investors in traditional assets such as stocks and equity funds. The micro-evidence in this paper suggests that the introduction of retail structured products increases stock market participation. The effect is larger for relatively poor households and households that initially have a low risky share.