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

24 Pages Posted: 26 Aug 2011 Last revised: 29 Aug 2011

See all articles by Brigette M. Forbes

Brigette M. Forbes

Realindex Investments

Anup K. Basu

Queensland University of Technology; Financial Research Network (FIRN)

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2011


Fundamental indexing based on accounting valuation has drawn significant interest from academics and practitioners in recent times as an alternative to capitalisation 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. Contrary to many previous studies, our results show that superior performance of fundamental indexation could not be attributed to value or size premium. Overall, the findings indicate that fundamental indexation could offer potential outperformance of traditional indexation based on market capitalisation even after adjusting for the former’s slightly higher turnover and transaction costs.

Keywords: Fundamental Index, Capitalisation Index, Passive Management, Valuation

JEL Classification: G10, G11, G14, G15

Suggested Citation

Forbes, Brigette M. and Basu, Anup K., Does Fundamental Indexation Lead to Better Risk Adjusted Returns? New Evidence from Australian Securities Exchange (August 26, 2011). Available at SSRN: or

Brigette M. Forbes

Realindex Investments ( email )

Level 11, 9-19 Elizabeth St
Sydney, NSW 2000

Anup K. Basu (Contact Author)

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics