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Complex Instruments Have Increased Risk and Reduced Performance at Mutual Funds

Paul Calluzzo et al.

Critical Finance Review2025https://doi.org/10.1561/104.00000150article
AJG 1ABDC A*
Weight
0.49

Abstract

We study the allowance and use of derivatives, leverage, and illiquid assets by mutual funds. We observe that an increasing number of funds are granted access to these complex instruments over our sample period. In contrast to previous studies, we find that the allowance of these complex instruments is associated with poor performance and higher risk. The underperformance is most acute during market downturns, and among mutual funds that are allowed to use derivatives. We also find that mutual funds underperform when they actually use complex instruments. Overall, our results suggest caution in allowing funds to use these complex instruments.

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https://doi.org/https://doi.org/10.1561/104.00000150

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@article{paul2025,
  title        = {{Complex Instruments Have Increased Risk and Reduced Performance at Mutual Funds}},
  author       = {Paul Calluzzo et al.},
  journal      = {Critical Finance Review},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1561/104.00000150},
}

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Complex Instruments Have Increased Risk and Reduced Performance at Mutual Funds

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Evidence weight

0.49

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.44 × 0.4 = 0.18
M · momentum0.60 × 0.15 = 0.09
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.