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Fundamental indexation in Europe

Author

Listed:
  • Julius Hemminki
  • Vesa Puttonen

    (Helsinki School of Economics)

Abstract

We examine the benefits of fundamental indexation using European data. Our findings suggest that by re-weighting a capitalisation-weighted market index by certain fundamental values, it is possible to produce consistently higher returns and higher risk-adjusted returns. Some of these fundamental portfolios produce consistent and significant benefits compared to the capitalisation-weighted portfolio. Thus, our results are in line with Arnott et al. (2005) from the US markets.

Suggested Citation

  • Julius Hemminki & Vesa Puttonen, 2008. "Fundamental indexation in Europe," Journal of Asset Management, Palgrave Macmillan, vol. 8(6), pages 401-405, February.
    • Handle: RePEc:pal:assmgt:v:8:y:2008:i:6:d:10.1057_palgrave.jam.2250090
    DOI: 10.1057/palgrave.jam.2250090
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    References listed on IDEAS

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    1. Eugene F. Fama & Kenneth R. French, 2004. "The Capital Asset Pricing Model: Theory and Evidence," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 25-46, Summer.
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    Cited by:

    1. Wenguang Lin & Gary C. Sanger, 2019. "An alternative fundamental weighting scheme based on enterprise value multiple," Journal of Asset Management, Palgrave Macmillan, vol. 20(2), pages 146-156, March.
    2. Raza, Muhammad Wajid & Ashraf, Dawood, 2019. "Does the application of smart beta strategies enhance portfolio performance? The case of Islamic equity investments," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 46-61.
    3. Christian Walkshäusl & Sebastian Lobe, 2010. "Fundamental indexing around the world," Review of Financial Economics, John Wiley & Sons, vol. 19(3), pages 117-127, August.
    4. Walkshäusl, Christian & Lobe, Sebastian, 2010. "Fundamental indexing around the world," Review of Financial Economics, Elsevier, vol. 19(3), pages 117-127, August.
    5. Sermpinis, Georgios & Stasinakis, Charalampos & Dunis, Christian, 2014. "Stochastic and genetic neural network combinations in trading and hybrid time-varying leverage effects," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 30(C), pages 21-54.
    6. M. Volkov & М. Волков, 2018. "Анализ фундаментальной индексации как эффективный подход к активному инвестированию // Analysis of Fundamental Indexation as an Efficient Approach to Active Investing," Review of Business and Economics Studies // Review of Business and Economics Studies, Финансовый Университет // Financial University, vol. 6(4), pages 41-51.
    7. Balatti, Mirco & Brooks, Chris & Kappou, Konstantina, 2017. "Fundamental indexation revisited: New evidence on alpha," International Review of Financial Analysis, Elsevier, vol. 51(C), pages 1-15.
    8. Enrica Bolognesi & Giuseppe Torluccio & Andrea Zuccheri, 2013. "A comparison between capitalization-weighted and equally weighted indexes in the European equity market," Journal of Asset Management, Palgrave Macmillan, vol. 14(1), pages 14-26, February.
    9. Nipun Agarwal, 2014. "How to obtain high returns with lower volatility in emerging markets?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-16, December.
    10. Marielle de Jong & Lauren Stagnol, 2016. "A fundamental bond index including solvency criteria," Journal of Asset Management, Palgrave Macmillan, vol. 17(4), pages 280-294, July.
    11. Santosh Kumar & Ranjit Tiwari, 2021. "Does the fundamental indexation portfolio perform better? An Indian investigation," Accounting Research Journal, Emerald Group Publishing Limited, vol. 35(2), pages 121-144, June.
    12. Lauren Stagnol, 2015. "Designing a corporate bond index on solvency criteria," EconomiX Working Papers 2015-39, University of Paris Nanterre, EconomiX.
    13. Raphael Moses Roquete & Ricardo P. C. Leal & Carlos Heitor Campani, 2018. "Corporate governance and fundamental indexation in Brazil," Economics Bulletin, AccessEcon, vol. 38(3), pages 1494-1504.
    14. David Blitz & Laurens Swinkels, 2008. "Fundamental indexation: An active value strategy in disguise," Journal of Asset Management, Palgrave Macmillan, vol. 9(4), pages 264-269, October.
    15. Ardia, David & Boudt, Kris & Wauters, Marjan, 2016. "The economic benefits of market timing the style allocation of characteristic-based portfolios," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 38-62.
    16. Chen, Doris & Dempsey, Michael & Lajbcygier, Paul, 2015. "Is Fundamental Indexation able to time the market? Evidence from the Dow Jones Industrial Average and the Russell 1000," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 37(C), pages 162-177.
    17. Olaf Stotz & Gabrielle Wanzenried & Karsten Döhnert, 2010. "Do fundamental indexes produce higher risk-adjusted returns than market cap indexes? Evidence for European stock markets," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 24(3), pages 219-243, September.

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