Editor’s Letter

We begin the Summer 2017 issue with Ung’s introduction of a new smart beta metric, the cost-adjusted factor efficiency ratio, which focuses on the financial trade-off between achieving greater targeted exposure and ensuring investability. Kanuri, Malhotra, and McLeod investigate the performance of dividend exchange-traded funds (ETFs) during both bull and bear markets. Using the S&P 500 ETF (IVV) as a proxy for the U.S. market, they find that dividend ETFs are much more expensive than IVV and are highly correlated with IVV. Kim, Li, and Perry study the S&P game and present evidence that suggests that the upward price drift between announcement and effective dates has mostly disappeared in recent years and that nearly all of the price impact for a newly added stock occurs prior to the opening of the market on the day immediately following the announcement.

Next, Ge analyzes volatility risk premium (VRP) strategies and concludes that investors’ aversion to option selling may be unjustified and that they may benefit significantly from the VRP at all times—especially in today’s market, when the expected returns from traditional assets are subdued. Shariq and Sukor compare the styles of four Islamic indexes from major index providers, whose Shariah screening criteria are at variance, and reveal important differences in the styles of the analyzed Islamic indexes, much of which can be attributed to differences in their screening criteria in light of the relevant literature. Radha introduces an investment paradigm that provides a blueprint for developing enhanced international indexes and fund-of-funds ETFs using the principles of multifactor investing.

We conclude the issue with Fassas, who examines the tracking performance of VIX futures and seven popular volatility exchange-traded products (ETPs) on the spot VIX index and finds that there is still potential room for additional VIX ETP offerings that would attempt to track spot VIX following either a physical or a synthetic replication method.

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 email us at journals{at}investmentresearch.org.

TOPICS: Analysis of individual factors/risk premia, security analysis and valuation, global

Brian Bruce

Editor-in-Chief

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