Editor’s Letter

Some of the ways investors use sovereign credit default swaps (CDS) are hedging sovereign cash bonds to earn carry by selling protection in sovereign CDS and to take advantage of the relative value between sovereign CDS spreads and cash spreads by trading the CDS on a cash basis. We open the winter issue with a discussion of trading strategies for these uses of sovereign CDS by Wadhwa and Gupta. Clifford, Jordan, and Riley study absolute return mutual funds and their ability to deliver positive alpha, finding that these funds did not perform as well as their counterparts and had significant factor exposures, higher fees, and more turnover. Olsen examines the expected length of a firm’s competitive advantage period as implied by the current market capitalization as part of the valuation process. In examining the distribution of returns, He provides supportive evidence for optimistic speculation over pessimistic selling, which could be useful for both individual and institutional investors in long-term investment planning and portfolio adjustments. Alhenawi and Hassan study the performance of REITs that are in compliance with Islamic investment guidelines, finding sustained outperformance. Adams and Ahmed present a performance comparison of faith-based mutual funds, socially responsible funds, and mutual funds in general. Tavor examines investors’ responses to target price rumors.

Our special section this issue focuses on global quantitative risk. Deng and Min analyze the performance of an optimal global portfolio, finding that subject to the same set of practical constraints, the risk-adjusted return of an efficient portfolio of the global equity universe outperforms that of the domestic equity universe. Shao and Rachev show that the mean-expected tail loss portfolio based on a global expected return (GLER) model generated statistically significant active returns during the 2003–2011 period. Guerard, Markowitz, and Xu found support for composite modeling using analysts’ expectations, momentum, and fundamental data for global stocks from 1997 through 2011. We conclude this issue with Sivaramakrishnan and Stubbs discussing their use of the GLER study to highlight the important role of custom risk models in addressing the misalignment between the implied alpha and the risk model.

As always, we welcome your submissions. We value your comments and suggestions, so please email us at journals{at}investmentresearch.org.

Brian Bruce

Editor-in-Chief

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