An Examination of Fundamental Indexation

Abstract

We review the Fundamental Indexation concept in this paper and examine its performances out-of-sample using 20 years of international data. We find Fundamental Indexes outperform reliably in all developed countries selected for our study. In addition, we examine the out-of-sample performance using mid cap and small cap stocks. Again, we find Fundamental Indexes outperform with consistency. We are led to conclude that Fundamental Indexation works and is not a result of mining the U.S. data for spurious relationships; the evidence is compelling and overwhelming that Fundamental Indexing an improvement over traditional cap-weighted index construction.

Keywords: Fundamental Index, Indexing, Capitalization Weighting, Non-price-based Indexing