Guest editorial

Citation

Hoque, M. (2013), "Guest editorial", Managerial Finance, Vol. 39 No. 7. https://doi.org/10.1108/mf.2013.00939gaa.001

Guest editorial

Article Type: Guest editorial From: Managerial Finance, Volume 39, Issue 7

The current special issue of Managerial Finance showcases some of the papers presented at the 26th Annual Meeting of the Academy of Finance[1], Chicago, Illinois, USA in 2012. These papers underwent a standard double blind peer review process where two or more reviews were completed. Further, the Editorial Board of the Journal of Finance Issues conducted a blind review of the short listed articles and recommended these papers for publication.

The selected papers focus on risk metric, global financial crises, diversification, bankruptcy and the level of economic freedom and growth. We begin the special issue with the paper on risk metric, VaR. Pat Obi and Shomir Sil employ the GARCH technique to calculate the volatility patterns of three equity portfolios from the USA, the UK, and Japan. The GARCH effects found in the returns distributions of the portfolios are utilized to calculate their VaRs. The authors’ approach produces more robust volatility estimates with increased reliability in the VaR calculations.

The next two papers analyze risks during and around global financial crisis (GFC). Anthony Loviscek and Elven Riley, using monthly return data for all firms in the S&P 500 from 2002 to 2010, show that firm level risk of the S&P 500 during GFC increased significantly across all sectors specially in the financial sector. Evidently, due to increase in correlation coefficients around GFC reduces benefits of diversification, and may indicate reduced global trade. Jamshed Y. Uppal and Inayat Ullah Mangla explore the reliability of risk models during financial turbulence. They examine the distributions of extreme losses in ten stock markets over the GFC period. The authors find that the extreme value theory largely explains the observed distributions in both the pre-GFC and the GFC periods. Particularly, the estimated distribution parameters are significantly different in the two periods. The authors conclude that the quantitative risk models in times of financial crises are inadequate, and need to be used with discretion.

Shyam Bhandari and Rajesh Iyer study the bankruptcy of firms using six cash flow measures. They used a sample of 50 failed firms belonging to 20 different industries from a period of 2008 to 2010. Employing multivariate discriminant analysis of matched sample of 100 firms with seven predictor variables, the authors correctly classify 83.3 percent of original grouped cases and 79.5 percent of cross-validated grouped cases.

Our last paper investigates cause and effect relationships between the level of economic freedom and economic growth. The value of the Economic Freedom Index does not appear to correlate with the return of the country specific exchange traded fund. Timothy Peterson posits that the individual stocks and the ETF of each country are correctly priced. Like in an efficient market, only an unexpected change in the value of the Economic Freedom Index is likely to change the return on stocks in the ETF.

Note

1. The Academy of Finance was formed in 1987 under the administrative umbrella of the Midwest Business Administration Association. Over the years, the Academy has grown and prospered, attracting authors from 45 states and over 15 different countries. The Journal of Finance Issues ( JFI ) is a peer reviewed Cabell listed journal of the Academy.

Monzurul HoqueGuest Editor