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To open the Summer issue, Clarke, Nolan, and Sampson review a framework for evaluating investment innovation and assessing its contribution to “investor welfare,” a measure of investors’ ability to build portfolios that reflect their preferences. They also discuss opportunities for innovation and the technological and regulatory developments that could bring them to the marketplace. Renshaw reports that the weakening of the Index Effect has been pronounced for large- and mid-cap stocks. He examines the importance of several other aspects related to the Index Effect including illiquidity and unscheduled rebalances. He also discusses potential explanations for the weakening.
Next, Henke, Kaufmann, Messow, and Fang-Klingler investigate the application of factor investing in corporate bonds. Their results suggest that investors in the corporate bond market should strongly consider using systematic strategies in the form of an integrated multifactor approach instead of relying on external managers to implement factor exposures, combining a wide variety of factors from the areas of risk, value, quality, and sentiment. Fisher, McDonald, and Kozlowski examine the cross-sectional correlations among equities and relate that to the performance of actively managed mutual funds. They find that actively managed mutual funds generate lower abnormal returns when the average cross-sectional correlation is high. This result holds for both small funds and large funds, within various subperiods, and when controlling for fund fixed effects.
To complete this issue, Dey and Wang, in a return commonality framework, estimate portfolio betas associated with changes in returns of 15 Chinese ADRs and their underlying H-shares. Their results indicate asymmetric impact of changes in portfolio returns on changes in ADR and H-share returns; further, the asymmetries are enhanced across return quartiles.
As always, we welcome your submissions. Please encourage those you know who have papers or have made good presentations on indexing, ETFs, mutual funds, or related subjects to submit them for consideration. We value your comments and suggestions, so please email us at journals{at}investmentresearch.org.
TOPICS: Mutual fund performance, exchange-traded funds and applications, factor-based models
Brian Bruce
Editor-in-Chief
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