From the Editor

This issue begins Volume 1 and my first year as Editor of International Review of Applied Financial Issues and Economics (IRAFIE). I would like to thank the editorial boards for their continued support.
I encourage authors to reach out when discussing implications of their findings in a more comprehensive way. As such, all articles in the Review will more appropriately relate to financial issues.

The lead article in this volume is by Frederick Adjei of Southeast Missouri State University. The author proposes an article titled “Diversification, Performance, and Performance Persistence in Exchange-Traded Funds” in which he examines the degree of diversification, performance, and performance persistence in ETFs. He fined that about 38% of an average ETF’s total risk is diversifiable risk and the medium blend ETFs are the least diversified. Also he concludes no significant differential performance between ETFs and the S&P 500 index.

The second paper belongs to Elhaj Mabrouk Walid and Wee-Yeap Lau and is entitled “Constructing Fama-French model from Russell/Nomura style indexes: Japanese evidence”. In this paper they use risk factors constructed from Russell/Nomura style indexes in an attempt to make the Fama and French (FF) three-factor model more appealing, which is new to the existing literature.

In the following paper, Jeffrey E. Jarrett and Zhenzhen Sun from the University of Rhode study market return for firms listed on the financial exchanges in six Pacific Basin Nations. They stud whether we can explain differences in financial returns for firms by the general size of the firms. They investigate whether the associations are systemic (due to firm size) or are due to other factors.

The fourth paper titled “Time Series Implications of Risk and Efficiency: Evidence from Greece, 1994-2007” belongs to Dimitris G. Kirikos from Greece. The author uses monthly data from the Athens Stock Exchange, over 1994-2007, to explore the relationship between risk aversion and market efficiency. The empirical evidence points to statistical rejections of efficiency in the Greek stock market which, nevertheless, appear to be transitory when risk averse behavior of investors is accounted for.

The following paper is by Julien Chevallier of Paris Dauphine University and Imperial College London. The work is entitled “Modelling the convenience yield in carbon prices using daily and realized measures”. The main objective of this paper is to investigate the modelling of the convenience yield in the European carbon market by using daily and intradaily measures of volatility. The main findings are that (i) a simple AR (4) process best describes the 2008 convenience yield, and (ii) there exists a non linear relation between spot and futures prices. These results are of interest for energy utilities, risk-managers, and traders exposed to the variation of carbon prices.

K. Srinivasan and Malabika Deo from Pondicherry Central University at India propose an article entitled “The Temporal Lead Lag and Causality between Spot and Futures Markets: Evidence from Multi Commodity Exchange of India”. The main objective of this paper is to examine the temporal lead lag and causality between Mini gold spot and futures market by taking daily closing values for both the indices from the sample period June 1st January 2005 to 31st December 2008 for the Multi Commodity Exchange of India (MCX). The main results of the study reveal that, in the long run, both the markets are cointegrated and there exists a causal relationship between these two markets. Also, they show that unidirectional causality is running from spot to futures market in long-run dynamics and spot market serves as a primary market for price discovery.

Atanu Das, Tapan Kumar Ghoshal, and Pramatha Nath Basun from India propose a review on recent trends of Stochastic Volatility Models (SVMs) with an emphasis on realized volatility literatures. SVMs evolved and characterized during last two decades are considered for comparison with respect to their evolution and contributions. The present work summarizes estimation techniques, and advocates the use of sophisticated filtering techniques for different types of state and parameters of SVMs.

Imad A. Moosa from Monash University at Australia proposes an article titled “Hedging Transaction Exposure to FX Risk by Using Sharing Arrangements and Currency Collars”. He uses a hybrid operational hedging technique to shift some of the foreign exchange risk from the importer to the exporter when the currency of the exporter is the currency of invoicing. The theoretical results are demonstrated with the use of monthly data on the exchange rate between the British pound and the U.S. dollar over the period January 1993-October 2006

The following article titled “Can Selective Hedging Add Value to Airlines? The Case of Crude Oil Futures” is by Ray R. Sturn of University of Central Florida. The author examines whether selective hedging strategies can realistically be expected to add value to carriers. He find that jet fuel spot and crude oil futures prices exhibit seasonal tendencies, but not reliable behavior following new highs in prices. Finally, he estimates that the potential value to the airline industry from selectively hedging these tendencies may be in excess of $578.3 million.

The last but not least paper is that of Konstantinos Vergos and John Mylonakis from Greece. They examine the extent to which company valuation of listed companies is associated with the existence of real options, by linking Ohlson Residual Income model to real option theory. The study evaluates the real options of companies listed on the Athens Stock Exchange during the time period of January 1992 to December 1998. The research indicates that the growth options are a significant explanatory variable in the context of the residual income valuation model. The findings provide, also, some support of the predictive ability of the residual income model and are generally in line with findings from UK and USA researchers.

Thanks to those who make the review possible, especially the referees and contributing authors. Please consider submission to the International Review of Applied Financial Issues and Economics (IRAFIE) and rely on the style information provided to ease readability and streamline the review process. The Review welcomes articles over the range of areas that comprise applied financial issues. While IRAFIE articles are certainly diverse in terms of topic, data, and method, they are focused in terms of motivation. IRAFIE exists to produce research that addresses issues that matter to individuals. I remain committed to the goal of making International Review of Applied Financial Issues and Economics the best academic journal in applied financial issues. The peer review process continues to benefit our profession.

Finally, we thank all the authors who through their effort made possible the issuing of the first number of The International Review of Applied Financial Issues and Economics (IRAFIE), and whom we assure about our best intentions.

Thierry Chaby