The Relationship Between Complex Instruments and Fund Risk

We have two guests joining us for this episode of the Rational Reminder podcast. First up, we have Paul Calluzzo, who is the Assistant Professor of Finance and Toller Family Fellow of Finance in the Smith School of Business at Queen's University in Kingston. Paul joins us today to discuss the findings in his paper, ‘Complex Instruments Have Increased Risk and Reduced Performance at Mutual Funds’. He explains the motivation for the paper, the research it expands upon, and the types of complex instrument allowances it investigates. We discuss reverse causality and find out how complex instrument allowance is related to fund performance and risk, respectively, before hearing Paul’s investment advice. For the second half of the show, we are joined by the author of Losing the Signal: The Spectacular Rise and Fall of BlackBerry, Sean Silcoff to discuss the BlackBerry revolution and its subsequent decline, and the film adaptation of the book. Tune in for our guests’ insights into best practices for investors and business leaders alike.

Key Points From This Episode:

•    Housekeeping: check out our CE courses and reach out for financial advice. (0:02:25)

•    An introduction to Paul Calluzzo and our conversation with him about the impact of complex financial instruments on mutual funds. (0:05:20)

•    The motivation for the paper, ‘Complex Instruments Have Increased Risk and Reduced Performance at Mutual Funds’, the research it expands upon, and the types of complex instrument allowances it investigates. (0:07:50)

•    Reverse causality relating to complex instruments and mutual funds, and the mechanisms that could potentially harm investors in funds using complex instruments. (0:12:37)

•    How the performance of funds was evaluated in the paper and how the usage of complex instruments evolved throughout the sample. (0:18:12)

•    How complex instrument allowance is related to fund performance and risk. (0:23:06)

•    The asymmetry of return patterns in up and down markets. (0:26:11)

•    Paul’s investment advice, in the context of the paper’s findings. (0:33:05)

•    Why complex products are growing despite their poor performance and how research can reach the market. (0:37:05)

•    A quick recap of episode 39 with Rob Carrick. (0:40:48)

•    Our brief review of Losing the Signal: The Spectacular Rise and Fall of BlackBerry by Sean Silcoff and Jacquie McNish. (0:41:49)

•    Sean Silcoff breaks down the BlackBerry revolution and its subsequent demise. (0:44:53)

•    Insight into the film adaptation of the book and what makes it such a compelling story. (1:04:51)

•    What business leaders and investors can take away from the BlackBerry story. (1:08:09)

•    Our after-show roundup! (1:15:12)

Participate in our Community Discussion about this Episode:

https://community.rationalreminder.ca/t/episode-253-complex-financial-instruments-with-prof-paul-calluzzo-plus-sean-silcoff-on-losing-the-signal-discussion-thread/23482

Book From Today’s Episode:

Losing The Signal: The Spectacular Rise and Fall of BlackBerry Kindle Edition — https://amzn.to/3OaA5Wa

Links From Today’s Episode:

Rational Reminder on iTunes — https://itunes.apple.com/ca/podcast/the-rational-reminder-podcast/id1426530582.

Rational Reminder Website — https://rationalreminder.ca/

Shop Merch — https://shop.rationalreminder.ca/

Join the Community — https://community.rationalreminder.ca/

Follow us on Twitter — https://twitter.com/RationalRemind

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Benjamin on Twitter — https://twitter.com/benjaminwfelix

Cameron on Twitter — https://twitter.com/CameronPassmore

Paul Calluzzo — https://smith.queensu.ca/faculty_and_research/faculty_list/calluzzo-paul.php

Sean Silcoff on LinkedIn — https://www.linkedin.com/in/sean-silcoff-777b0912

Sean Silcoff on Twitter — https://twitter.com/SeanSilcoff

'Complex Instruments Have Increased Risk and Reduced Performance at Mutual Funds' — https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2938146