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Does Fundamental Indexation Lead to Better Risk Adjusted Returns? New Evidence from Australian Securities Exchange


  • Brigette Forbes

    (Realindex Investments)

  • Anup Basu

    () (QUT)


Fundamental indexing based on accounting valuation has drawn significant interest from academics and practitioners in recent times as an alternative to capitalization weighted indexing based on market valuation. This paper investigates the claims of superiority of fundamental indexation strategy by using data for Australian Securities Exchange (ASX) listed stocks between 1985 and 2010. Not only do our results strongly support the outperformance claims observed in other geographical markets, we find that the excess returns from fundamental indexation in Australian market are actually much higher. The fundamental indexation strategy does underperform during strong bull markets although this effect diminishes with longer time horizons. On a rolling five years basis, the fundamental index always outperforms the capitalization-weighted index. Contrary to many previous studies, our results show that superior performance of fundamental indexation could not be attributed to value, size, or momentum effects. Overall, the findings indicate that fundamental indexation could offer potential outperformance of traditional indexation based on market capitalization even after adjusting for the former’s slightly higher turnover and transaction costs.

Suggested Citation

  • Brigette Forbes & Anup Basu, 2011. "Does Fundamental Indexation Lead to Better Risk Adjusted Returns? New Evidence from Australian Securities Exchange," School of Economics and Finance Discussion Papers and Working Papers Series 275, School of Economics and Finance, Queensland University of Technology.
  • Handle: RePEc:qut:dpaper:275

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    References listed on IDEAS

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    Cited by:

    1. Lauren Stagnol, 2015. "Designing a corporate bond index on solvency criteria," EconomiX Working Papers 2015-39, University of Paris Nanterre, EconomiX.
    2. 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.

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