Nothing Lasts Forever (And Everywhere): Fundamental Indexation at the Global Level

Journal of Index Investing, 2017, 8 (3), 6-20

Posted: 28 Feb 2019

See all articles by Adam Zaremba

Adam Zaremba

Montpellier Business School; Poznan University of Economics and Business

Tomasz Miziołek

University of Lodz

Date Written: July 24, 2017

Abstract

Fundamental indexation is commonly employed to form portfolios of stocks, but can we also use it to form portfolios of countries? The authors investigate whether fundamental weighting can be applied to enhance the profits from international diversification. To this end, they form and evaluate fundamental indexation strategies within an up-to-date sample of equity benchmarks covering 71 countries for the years 1995–2017. The fundamentally weighted portfolios indeed outperform capitalization-weighted indexes, but significant benefits are largely limited to emerging and frontier markets and almost disappear from the post-2007 period. The abnormal returns result from additional exposure to country-level value and size effects, which have delivered disappointing performance in the past decade.

Keywords: fundamental indexation, international diversification, emerging markets, frontier markets, country-level anomalies, value premium, size premium, small-country effect, the cross-section of returns, return predictability

JEL Classification: G12, G15

Suggested Citation

Zaremba, Adam and Miziołek, Tomasz, Nothing Lasts Forever (And Everywhere): Fundamental Indexation at the Global Level (July 24, 2017). Journal of Index Investing, 2017, 8 (3), 6-20, Available at SSRN: https://ssrn.com/abstract=3332916

Adam Zaremba (Contact Author)

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, Occitanie 34000
France

Poznan University of Economics and Business ( email )

al. Niepodległości 10
Poznań, 61-875
Poland

HOME PAGE: http://adamzaremba.pl

Tomasz Miziołek

University of Lodz ( email )

Ulica Prezydenta Gabriela
Narutowicza 65 str.
Lodz, 90-131
Poland

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