A New Kind of Index Fund that Beats its Index

The Journal of Performance Measurement, Winter 1998-1999, 35-48

14 Pages Posted: 4 Oct 2013

Date Written: November 30, 1998

Abstract

Imagine, if you can, an index that requires dynamic reweighting of the portfolio, based on the continuously changing capitalization weights of the index's securities. You would need a computer generated trading system, obviously, and a patent to protect it. The authors now have both, having had their patent granted in October 1998. And, while several papers have been written since the patent was applied for in 1995, the following is the first publication illustrating (in truly accessible language) the tie-in between the original theory of entropy-weighting, resulting in the Diversity-Weighted S&P 500 Index, a real index currently used by the authors to manage money. Readers will partake in a theoretical discussion of an entropy-weighted portfolio, with the benefit of this real-world application. A mathematical paper on Diversity Theory is scheduled to appear in a coming issue of The Journal of Mathematical Economics.

Suggested Citation

Ferguson, Robert and Fernholz, E. Robert Robert, A New Kind of Index Fund that Beats its Index (November 30, 1998). The Journal of Performance Measurement, Winter 1998-1999, 35-48. Available at SSRN: https://ssrn.com/abstract=2335413

Robert Ferguson (Contact Author)

AnswersToGo ( email )

6815 Edgewater Drve
Apt 208
Coral Gables, FL FL 33133
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7868974573 (Phone)

E. Robert Robert Fernholz

Allocation Strategies, LLC ( email )

1 Palmer Square
Princeton, NJ 08542
United States
609-497-0442 (Phone)
609-497-0441 (Fax)

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