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Fundamental Indexation in Europe: New Evidence

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  • Enrica Bolognesi
  • Mattia Pividori

Abstract

Fundamental Indexation proposes an index construction methodology based on several metrics able to describe a firm's «economic footprint». We compare the risk-return profile of fundamental-weighted indexes with their related cap-weighted benchmarks, focusing on the European markets during the period 1999-2013. We provide evidence of the superiority of this approach but, only: 1) if the weighting scheme is based on firm income; 2) during the Internet Bubble Burst; 3) during the realignment phase of stock prices vs firm fundamentals. Using the factor analysis, we provide evidence of high correlation between the selected fundamentals, suggesting the opportunity to simplify the index-weighting scheme.

Suggested Citation

  • Enrica Bolognesi & Mattia Pividori, 2016. "Fundamental Indexation in Europe: New Evidence," Journal of Financial Management, Markets and Institutions, Società editrice il Mulino, issue 2, pages 103-128, December.
    • Handle: RePEc:mul:jdp901:doi:10.12831/85432:y:2016:i:2:p:103-128
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