From the Editor

This issue contains Volume 27 - Issue 4 of Financial Services Review (FSR). I would like
to thank the board and members of the Academy of Financial Services for their continued
support. I continue to work in broadening the scope of articles, while still focusing on
individual financial management and personal financial planning. I encourage authors to
reach out when discussing implications of their findings in a more comprehensive way. As
such, all articles in the Journal more appropriately relate to financial planning issues.

The lead article “The Importance of Debt for Household Risky Asset Allocation and
Portfolio Structure” is coauthored by Ran Tao and Yuan Yuan, both at University of
Wisconsin, Whitewater. The authors examine the joint behavior of debt and financial asset
portfolio decisions. They test the relationship between debt structure and asset allocation and
then estimate the determinants of debt structure and asset allocation simultaneously. They
find evidence that debt structure affects households’ risky asset allocation decisions and
identify the demographic and financial factors that can contribute to the household overall
financial portfolio structure.

The second article “The Impact of the Tax Cuts and Jobs Act oon IRA Choice for
Moderate Income Investors, is coauthored by Timothy Manuel, Lee Tangedahl, and Kent
Swift, all at University of Montana, Missoula. While he Traditional IRA remains the more
popular choice of IRA among investors and the passage of the 2018 Tax Cut and Jobs Act
makes the Traditional IRA a better choice for many moderate income individuals who will
be in the 22% marginal tax bracket during their working years. The authors compute
breakeven rates of return on investment where the Roth is preferred to the Traditional are
higher with the new tax law. The utilize a spreadsheet model for investors who do not invest
the tax savings and find that in this case the Traditional IRA can be a better choice for many
moderate income individuals.

The third article, “Local Creative Culture and Dividend Policy” is coauthored by Erdem
Ucar and Arsenio Staer, both at California State University Fullerton. The authors examine
the role of local risk-taking propensity on dividend demand by using local creative culture
as a measure of local risk-taking. They find that firms located in areas with a strong creative
culture are less likely to pay and initiate dividends and exhibit lower levels of dividend yield.
The paper also highlights the local component of corporate dividend policies and offers
additional evidence supporting dividend catering theory. They indicate that these results
underscore the importance of cultural determinants of investors’ risk-taking for financial
industry participants.

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1057-0810/18/$ – see front matter © 2018 Academy of Financial Services. All rights reserved.



The fourth article, “Financial Capability: Literacy, Behavior, and Distress” is coauthored
by Janine K. Scott, at Shepherd University, Nghia Nguyen at Massey University, Yuanshan
Cheng at Winthrop University, and Philip Gibson at Winthrop University. In this paper the
authors investigate the influence of individual financial knowledge and financial behavior on
the probability of experiencing financial distress. They examine three measures of financial
distress related to bill payment, retirement saving, and being late with a mortgage payment.
They construct financial literacy and financial behavior indices using questions from the
survey that pertain to financial knowledge and financial decision-making. They conclude
that financial literacy and positive behavior reduces financial distress stemming from
simple financial matters. Although they find the opposite result for more complex
financial decisions.

The final article, “Risk and Reward of Fractionally-leveraged ETFs in a Stock/Bond
Portfolio” is authored by James DiLellio at Pepperdine University. The author investigates
using 1.25X leveraged stock and bond exchange-traded funds (ETFs) as an asset allocation
strategy. He analyzes performance by replicating funds from 1989–2017 and conducts
simulations to assess performance under a variety of market conditions, and demonstrate
opportunities for excess returns over unlevered funds in a 60/40 stock/bond allocation. These
results are accomplished with a small reduction in the Sharpe ratio and no need to access
margin. He concludes that this asset allocation strategy could be well suited for investors
more interested in total returns during upward trending markets.

Thanks to those who make the journal possible, especially the referees and contributing
authors. Over the past year, the following reviewers provided excellent reviews of the articles
you enjoyed within the pages of Financial Services Review. I would like to send a special
thank you to the many reviewers that have significantly contributed to the quality of our
journal by providing timely and thorough reviews of the submissions to our journal.

Please consider submission to the Financial Services Review and rely on the style
information provided to ease readability and streamline the review process. The Journal
welcomes articles over the range of areas that comprise personal financial planning. While
FSR articles are certainly diverse in terms of topic, data, and method, they are focused in
terms of motivation. FSR exists to produce research that addresses issues that matter to
individuals. I remain committed to the goal of making Financial Services Review the best
academic journal in individual financial management and personal financial planning.

Best regards,
Stuart Michelson

Editor Financial Services Review

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