Editor’s Letter

We open the Spring issue with Levi, Livnat, Zhang and Zhang, who examine whether trading in the extended hours is predictive of future returns. Ray studies artificial intelligence and speculates on how recent advances may be profitably employed for long-term, buy-and-hold discretionary value investing. Brown demonstrates that frequent fixed-time rebalancing rules are the most harmful to both risk and return, and recommends additional enhancements following rebalancing rules that reflect recent market behaviors. Aw, Dornick, Jiang, and Sivin examine the relationship between industry concentration and the cross-section of stock returns from a global perspective and find evidence that highly concentrated industries, on average, are more profitable and achieve higher than expected returns even after controlling for size, book-to-market, and momentum.

Ferguson, Agapova, Leistikow, and Rentzler illustrate how the probability that a talented manager’s performance will exceed the best in a pool of untalented managers can be surprisingly small and provide a framework for mitigating the detrimental effects of chasing performance. Costa, Jakob, and Niblock examine the risk–return characteristics of 29 options-based equity funds, their self-specified S&P 500 total return benchmark index, and a suite of alternative options-based strategy indexes in the U.S. from 2010 to 2015. Lahtinen and Shipe investigate the potential for agency problems in the analysis of investment advisor firm characteristics and set the foundation for understanding the compensation component of the investment advisor relationship and the associated agency problem. Johnson and Kanuri investigate the performance of target-date mutual funds relative to several passive indexes and reveal the need to develop measurement tools designed specifically to determine the performance of target-date mutual funds.

Next, Chin, Balakrishnan, and Gupta define prime alpha and find that it is persistent across time within each of the manager universes. They show evidence that investors should use prime alpha to discern skill from luck amongst active managers. Mladina decomposes REIT returns into their factor betas to show that real estate is a hybrid asset class and discusses the implications for asset allocation from the perspectives of mean–variance optimization of asset classes, the CAPM with efficient markets, and factor-based asset allocation. De Franco and Monnier propose a framework, derived from standard financial reporting, to measure a complete carbon footprint for dynamically rebalanced funds. Kanuri and Malm examine the performance of companies led by females and show that companies headed by females outperformed the U.S. market as proxied by the S&P 1500 and Russell 3000 indexes, creating significant value for their investors during the period of their study.

We conclude the issue with Morey and Yadav’s examination of the prevalence of the “file drawer problem,” a publication bias whereby editors of journals are much more likely to accept empirical papers with statistically significant results than those with nonsignificant results. Their results suggest that there is a publication bias in finance journals.

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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