The Controversy in Fundamental Indexation: Why Both Sides of the Argument are (Mostly) Correct
Journal of Investment Management (JOIM), Fourth Quarter 2012
Posted: 20 May 2013
Date Written: May 17, 2013
We examine the contribution of noise to the theoretical underpinnings of Fundamental Indexation (FI). Although we argue that market capital-weighted indexes do not incur a structural drag due to noise as claimed by the proponents of FI, we conclude, nevertheless, that noise as advanced by FI offers a potential for achieving superior returns to those achieved by market capital-weighted indexes. As such, FI represents an important insight to our understanding of asset pricing.
Keywords: Fundamental indexation, market capitalization, noise
JEL Classification: G00
Suggested Citation: Suggested Citation