2020 Hillsdale Award Winner

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2020 Hillsdale Investment Management
CFA Society Toronto Research Award Winner

About Paul Calluzzo

Paul Calluzzo is an Associate Professor & Toller Family Fellow of Finance at Smith School of Business at Queen’s University. He received his PhD in Finance from Rutgers Business School and a B.A. in Economics from Williams College.

His research interests are focused on institutional investors, corporate governance, mutual fund performance, and empirical asset pricing. His research articles have been published in leading journals including the Journal of Financial Economics, Management Science, Journal of International Business Studies, and the Journal of Corporate Finance, and featured in various media such as The Globe and Mail, Bloomberg and Morningstar.

When my co-authors, Fabio Moneta and Selim Topaloglu and I work on a research project, we strive for our findings to be relevant for academics, practitioners and regulators. We were drawn to participate in the Hillsdale Research Awards given the potential for the award to increase the visibility of our work, and amplify its impact. Following receipt of the award, the paper was accept for publication in a leading academic journal, and spurred on by the publicity associated with the award, received coverage from various media outlets such as the Financial Times, Bloomberg, Morningstar and the Rational Reminder Podcast. This coverage has helped insure that our work was disseminated to a wide audiences, and hopefully changed real world behavior. Winning the award has also positively impacted my academic journey by reoffering the importance of working in issues that are important to rewal-world investors. My co-author team has several ongoing project, the findings of which we believe are very relevant to investors, and which we plan to submit to future iterations of the Hillsdale Investment Management – CFA Society Toronto Research Award. My advice to other aspiring researchers considering participating in the awards would be to participate!

— Paul Calluzzo, 2020 Hillsdale Investment Management Research Award Winner

About the Research

Entitled: Complex Instrument Allowance at Mutual Funds, and co-authored with Fabio Moneta, and Selim Topaloglu.

The award-judging panel noted that Calluzzo, Topalogu, and Moneta found that the allowance of complex instruments was associated with lower performance and higher risk-taking, backing up concerns that already raised by practitioners and regulators. Their research also suggests market downturns and poor monitoring can magnify the adverse impact that complex instruments may have on fund performance. The three researchers made the following observations:

The positive returns associated to allowance in up markets do not compensate for fund losses in down markets, as the absolute value of the excess returns in the former (1.27%) is much lower than those in the latter (-5.24%).
Among the three categories of complex instruments analyzed (derivatives, leverage, and illiquid assets), leverage and derivatives allowance were associated with higher fund risk based on standard deviation and beta exposure. In terms of idiosyncratic volatility, leverage was associated to higher fund risk but derivatives allowance was not because it included stock index futures. The researchers did not find a relationship between illiquid assets and the three risk measures used.
There is a positive association between allowance and monitoring quality based on institutional fund ownership, fund size, and board independence. The researchers also found that strong monitoring may mitigate the adverse impact of complex instrument allowance on fund performance. These findings support the substitution hypothesis, which “implies that well-monitored funds are allowed to use the instruments because the monitoring mechanism will prevent them from abusing the instruments.” However, the researchers acknowledged that allowance and investment restrictions are not perfect substitutes.