PII: 1057-0810(92)90001-S


From the Editor 

This issue completes the second year of publication of the Financial Services 

Review. At this juncture, it is useful to ask whether the new publication appears to 

be “successful.” The answer is mixed. 

From an editorial and financial standpoint we are fine. The number of quality 

submissions increases continually and our total number of subscribers puts us well 

in the black. From an academic perspective we seem to be on target. Our articles 

are theoretically rigorous and a sizeable proportion of authors and editors are 

well-known in the field. Survey data and calls from finance departments around the 

country indicate that we are regarded as a quality refereed journal in the “good” 

category, comparable to the Financial Review. 

Finally, we must ask whether we are having an impact on the practice of 

individual financial management. In our “Letters to the Editor” section, a thoughtful 

reader and practitioner (with an MBA) replies in the negative. “As an academic 

journal it may be fine, but from a practical standpoint, I did not find it very helpful.” 

He goes on to say that “. . . the client does not want generalities and abstractions. 

He wants practical, specific direction.” 

In creating this journal, the Academy of Financial Services clearly opted away 

from the “practical.” There are hundreds of thousands of planners, brokers and 

bankers giving practical advice to clients, but only a few hundred scholars doing the 

basic research necessary to determine which advice is likely to be correct. There is 

a clear division of labor, but an unclear channel of communication between the two 

groups. A tiny handful of practitioners subscribe to the journal ( a dozen or so at 

best) and even our practitioner-readers are apparently dissatisfied. Perhaps diffusion 

will occur through the textbooks to the classrooms so the next generation of 

practitioners will benefit from our research. We welcome suggestions. 

The lead article in this issue, “An Index of Portfolio Diversification,” by Walt 

Woerheide and Don Persson addresses a relatively practical question for most 

individual investors, namely how many securities should be held in a portfolio to 

secure adequate diversification? While most of us are familiar with the academic 

studies that addressed this question, this article points out that previous studies have 

assumed that portfolios were evenly divided among their components. With uneven 

V 



Vi FINANCIAL SERVICES REVIEW, 2(2) 1993 

distribution, what is the best measure of diversification? The authors examined five 
such measures and found that the complement of the Herfindahl index was best. 

The second article is somewhat more theoretical than the first. “The Individual 
Investor in the Market: Forming a Belief Regarding Market Efficiency,” by Robert 

M. Peevy, Gene C. Uselton and John R. Moroney asks whether high market price 
volatility detracts from market efficiency by causing investors to focus on price 
movements, per se, and away from information related to the true value of the 

security. While not concluding that markets are either efficient or inefficient, the 
authors find that the “variance bounds” literature which attempts to make the case 
for inefficiency on the grounds of excess price volatility, does not do so convinc- 

ingly. 
The third article directly challenges advice given by many practitioners to their 

clients, namely that international diversification, through the purchase of shares of 
international mutual funds, is beneficial to investors. Using recent data, the authors 
Larry R. Lang and Robert M. Niendorf in their article “Performance and Risk 

Exposure of International Mutual Funds,” find that on a risk-adjusted basis, inter- 

national funds did not outperform domestic funds. 

The last two articles are survey and review pieces, written to bring our readers 
to the state of the art in the diverse fields that comprise individual financial 

management. The first, “What Strategies are Estate Planners Recommending? 

Evidence From Survey Data,” by Chris Prestopino summarizes advice from attor- 
ney-authors who have published recent articles in the leading estate planning trade 

publications. 

Our featured review article is entitled “The Risks of Pension Plans.” Written 
by Robert W. McLeod, Sharon Moody and Aaron Phillips, this timely piece 
identifies and describes the risks inherent in today’s pension plans. Particular 
attention is focussed on the roles of ERISA and the Pension Benefit Guaranty 

Corporation in safeguarding pension assets.