Professor Robert Kosowski discusses the role of luck and skill in Alternative Investment Management in his Imperial Inaugural: "Black Swans" and "Golden Geese".
Access to financial investments plays many important roles in society and the economy and has an impact on income inequality, financial stability and the efficient allocation of capital to investment projects. Given the consequences of the 2008 Global Financial Crisis and the Covid pandemic on financial stability, income inequality and record low interest rates for savers it is not surprising that alternative investments such as hedge funds have been in the spotlight. Questions have been asked regarding hedge funds’ diversification benefits, their systemic risk, their liquidity, their net of fee performance to investors as well as the effects of their short-selling activities as exemplified by the recent GameStop controversy.
Professor Robert Kosowski’s research is focused on understanding the role of luck (“black swans”) and skill (“golden geese”) in the alternative investment management industry and is related to a broader scientific area that studies the use of statistical significance in decision making including that of clinical trials. Robert has developed methods that can help regulators, investors and hedge fund managers identify hidden risks in hedge funds including those that can lead to “black swan” events. His research also studies the predictability of apparent “golden geese” hedge fund strategies.
In his lecture Robert will first discuss his research on the role of luck, skill and liquidity in the hedge fund industry and he will illustrate his research with applications from his past work for multi-billion dollar asset management firms and the UK government. Second, Robert will argue that the underappreciation of correlation risk in some hedge fund strategies continues to cause black swan events for investors. Third, Robert’s lecture will document that some aspects of hedge fund regulation significantly reduce risk-adjusted returns for retail investors and pension funds and thus have welfare implications. Finally, Robert will present his recent research that finds that short-selling bans during the Covid-19 pandemic were detrimental for liquidity and failed to support prices, showing that hedge funds short-selling activities can benefit their investors.
Professor Robert Kosowski
Professor Kosowski is Head of the Finance Department at Imperial College Business School. He is a research fellow at the Centre for Economic Policy Research (CEPR) and an associate member of the Oxford-Man Institute of Quantitative Finance at Oxford University. Robert is on the editorial board of the Journal of Systematic Investing. Robert holds a BA (First Class Honours) and MA in Economics from Trinity College, Cambridge University, and a MSc in Economics and PhD from the London School of Economics. Robert's research has been featured in The Financial Times and The Wall Street Journal and was awarded the European Finance Association 2007 Best Paper Award, four INQUIRE best paper awards, and the British Academy's mid-career fellowship (2011-2012).