Editor’s Letter

Flow toxicity can be measured in terms of the probability that a liquidity provider is adversely selected by informed traders. To further their research on volume-synchronized probability of informed trading (VPIN), Easley, López de Proado, and O’Hara discuss the impact of an incorrect VPIN calculation. Brandes and Domowitz examine European trading venues following the implementation of MiFID to determine their execution efficiency. Their focus is on the transaction costs incurred by investors. This is followed by Jones who demonstrates the relationship of VIX futures trading on the CBOE Futures Exchange to the underlying VIX index. He examines how VIX futures might diversify and enhance a standard portfolio of equity and fixed income. Glukhov presents a straightforward quantitative optimal dark allocation framework. It is based on experience in developing dark allocation algorithms for the EMEA markets.

Next Li investigates the daily trading behavior of institutional investors in target firms before and after merger and acquisition activities in US equity markets. The profitability of a pairs trading strategy is examined by Gutierrez and Tse. Sparrow, Patel and Lee provide an overview of the Canadian equity landscape and the role of high frequency trading. We conclude this issue with Glukhov’s discussion of probabilistic decision theory as a tool for managing difficulties with the inconsistent incorporation of analysts’ and portfolio manager’s views in the portfolio analysis.

As always, we welcome your submissions. Please encourage those you know who have good papers or have made good presentations on trading related subjects to submit them to us. Submission guidelines are included in this issue. We value your comments and suggestions so please email us at journals{at}investmentresearch.org.

TOPICS: Portfolio construction, statistical methods, volatility measures

Brian Bruce

Editor-in-Chief

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