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

Abstract

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

Dempsey, Michael J., The Controversy in Fundamental Indexation: Why Both Sides of the Argument are (Mostly) Correct (May 17, 2013). Journal of Investment Management (JOIM), Fourth Quarter 2012, Available at SSRN: https://ssrn.com/abstract=2266619

Michael J. Dempsey (Contact Author)

Ton Duc Thang University (TDTU) ( email )

District 7
Ho Chi Minh City, 3001
Vietnam

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