Editorial (Review of Business and Economic Studies)

Importance of information value issues in finance and economics can hardly be overestimated. Information is reflected (or not) in market prices; price itself could be used to predict major turmoils in economy; information use (or misuse) determines asset managers performance (or underperformance); market participants use information about central banks’ actions and econometric links between major macroeconomic variables to form their expectations about inflation and exchange rates; investment bankers use information about firm’s past fundamentals to hypothesize on its future value; local firms can learn from actions of multinational enterprises – i.e. copy information – to increase productivity, etc. Coincidence or not, but each paper in the current, 7th, issue of Review of Business and Economic Studies is somehow related to various aspects of the information impact on performance of firms, markets, its actors, and economy as a whole. And this is the reason why we’ve chosen to dedicate infographics on the second page of the cover to the topic of stock market information flows impact on each other. The model, outputs of which are visualized by Valery Barmin, allows to capture some aspects of information sharing regime changes as a result of crises. In fact, during major economic turmoils, regional information sets (i.e. sets that are supposed to be relevant only for regional stocks) become more globalized, market participants are sharing the same news flow. We can hypothesize, that under extreme uncertainty traders (probably, irrationally) are looking for any additional information piece, which could shed light on future. In turn, that leads to spontaneous coordination of market participants, which makes assets co-move together in times of financial turmoil. Further, we can observe some signs of habit formation: there is some evidence, though weak, that when situation stabilizes, information flow sharing decreases, but general patterns sustain, leading to more co-movement between assets. Assets co-movement, especially during crises, brings its own risks, creating huge obstacle to diversification. Quality of diversification is obviously one of the most disputable topics in modern quantitative finance. Boris Valilyev’s piece "Using Intrinsic Time in Portfolio Optimization" in current issue of our journal contributes to the field in two important ways. He uses mixture of distribution hypothesis to obtain nearly-normal returns, which then can be used to calculate historical estimates of market returns. His approach assumes applying concept of intrinsic time, which became well-known since seminal work by Clark, published in 1973 in *От редакции. Econometrica1. Boris Vasilyev deforms return series timescale across volume domain. By doing that he obtains series, that are slightly asynchronous in time domain, but instead synchronous in volume domain. According to mixture of distribution hypothesis, volume could be regarded as proxy for information arrival process, and information is regarded as the sum of all the forces, that drive prices. Returns are almost normal, but can we use asynchronous returns when building portfolio, which assumes simultaneity in trading? Boris Vasilyev offers his own solution to the problem; and by doing it, he, at the same time, develops his own way of covariance matrices robust estimation, which has solid ground in economic science. Empirical analysis performed by Vasilyev shows, that raw estimates of covariance matrices, obtained through this procedure, appear to be superior in terms of diagonality even to shrinked estimates. Efficiency frontiers built with these estimates strongly dominate frontiers build using all traditional approaches. This is definitely a breakthrough in portfolio management science. Another important and disputable issue in finance is what part of information set is reflected in prices. Ta Cong in his paper "Is There a Dividend Month Premium? Evidence from Japan" discusses, how stock market responds to news about firm’s dividend distribution decisions. Although he uses standard approach of building with-dividends and without-dividends portfolios and regressing its returns in CAPM, Fama-French and Carhart models, his findings contradict to previous evidence. He postulates regional differences in market reaction to dividend announcements. Dividend payers have always been regarded as value companies, paying to investor a premium over growth firms; but on Japanese market, as Ta Cong shows, dividend payers have negative premium over dividend non-payers. In fact, this means that information about dividends have negative value to investors in Japanese market – a puzzling finding.