QWAFAFEW: Dan DiBartolomeo on Why Getting Risk Right is Wrong

[You must arrive by 6pm. Elevator access to Robert Half offices after 6pm requires a badge]

Oct 25th Speaker: Dan DiBartolomeo, President & Founder, Northfield Information Services

Topic: Why Getting Risk Right is Wrong

Abstract: Many investment professionals who use risk models make a common mistake. They assume that a risk model is working well if the amount of volatility realized by a particular asset or portfolio is consistent with what the model had predicted. They believe that volatility forecasts should be an unbiased estimator of subsequent realized volatility. In this presentation we will provide five different rationales as to why seemingly unbiased estimates of volatility are undesirable both statistically and economically. The implications of these arguments are that professional investors routinely take too much risk, back-tests and simulations fail to capture the true risk of strategies, and that evaluation of investment performance is biased toward perceiving luck as skill -- leading to upward biased performance related compensation.

Speaker Bio: Mr. diBartolomeo is President and founder of Northfield Information Services, Inc. Based in Boston since 1986, Northfield develops quantitative models of financial markets. He sits on boards of numerous industry organizations include IAQF and CQA, and past president of the Boston Economic Club. His publication record includes thirty books, book chapters and research journal articles. In January 2018, he became editor of the Journal of Asset Management. Dan spent multiple years as a Visiting Professor at Brunel University, and has been admitted as an expert witness in litigation matters regarding investment management practices and derivatives in both US federal and state courts.