Stationarity is the means, variances, and covariances of asset returns assumed to be constant over time. Although this is a reasonable expectation in normal markets, it does not seem to hold true during times of market turmoil. To open this issue, Chafkin, Lo, and Sinnott discuss the StableRisk Index designed to maintain more stable risk levels. Broby reviews the historical background of the science behind constructing a country or global index, as well as the trade-offs modern index constructors have to make. This is followed by Bouchey, Fjelstad, and Vadlamudi, who examine cross-sectional volatility, demonstrating the potential uses of indices that would track it. Although some academics suggest that stock market risk increases as horizons lengthen, Redhead and Niklewski refute this and demonstrate that less restrictive use of the Black–Scholes option pricing model supports time diversification rather than refuting it.
Next, we have Goltz and Le Sourd, who examine cap-weighted indices to see if the recommendation to hold them is grounded in financial theory. Better disclosure is the concluding suggestion as Haslem reviews the current regulations involving mutual fund soft-dollar trading. This is followed by Walia and Kiran, who study the growth of Indian mutual funds and the effect of that on the Indian capital markets. We conclude this issue with Naylor, Wongchoti, and Gianotti’s investigation of the price efficiency of six commodity ETFs, finding that commodity ETFs have a low correlation with the S&P 500.
We welcome your submissions. Please encourage those you know who have good papers or have made good presentations on indexing, ETFs, mutual funds, or related subjects to submit them to us. We value your comments and suggestions, so please e-mail us at journals{at}investmentresearch.org.
TOPICS: Exchange-traded funds and applications, passive strategies, VAR and use of alternative risk measures of trading risk
Brian Bruce
Editor-in-Chief
Footnotes
Publisher’s Note:
Institutional Investor, the Publisher of The Journal of Index Investing, wants to extend a special thanks to the sponsors for supporting the launch of The Journal of Index Investing. Please note that no sponsor has influence on the editorial content found in The Journal of Index Investing. Representatives fromany firmare encouraged to submit an article to our independent editor, Brian R. Bruce, for review and prospective acceptance into the publication. All editorial submissions, acceptances, and revisions are the sole decision of Mr. Bruce. The editorial submission guidelines are found on the last page of the publication. I hope that you enjoy this and future issues of The Journal of Index Investing. Thank you.
Eric Hall
Publisher, Institutional Investor Journals, ehall{at}iijournals.com
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