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

30 Pages Posted: 24 Sep 2014

See all articles by Anup K. Basu

Anup K. Basu

Queensland University of Technology; Financial Research Network (FIRN)

Brigette M. Forbes

Realindex Investments

Multiple version iconThere are 2 versions of this paper

Date Written: September 2014

Abstract

We investigate the claims of superiority of fundamental indexation strategy over capitalisation‐weighted indexation using data for Australian Securities Exchange listed stocks. While our results are in line with the outperformance observed in other geographical markets, we find that the excess returns from fundamental indexation in Australian market are much higher. On a rolling 5‐year basis, the fundamental index always outperforms the capitalisation‐weighted index. Our results suggest that superior performance of fundamental indexation could not be entirely attributed to value, size or momentum effects. The outperformance persists even after adjusting for slightly higher transaction costs related to turnover.

Keywords: Fundamental index, Index funds, Indexing, Value investing

Suggested Citation

Basu, Anup K. and Forbes, Brigette M., Does Fundamental Indexation Lead to Better Risk‐Adjusted Returns? New Evidence from Australian Securities Exchange (September 2014). Accounting & Finance, Vol. 54, Issue 3, pp. 699-728, 2014. Available at SSRN: https://ssrn.com/abstract=2500547 or http://dx.doi.org/10.1111/acfi.12016

Anup K. Basu (Contact Author)

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Financial Research Network (FIRN)

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

HOME PAGE: http://www.firn.org.au

Brigette M. Forbes

Realindex Investments ( email )

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

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