Fundamental Indexation

Posted: 5 May 2005  

Robert D. Arnott

Research Affiliates, LLC

Jason C. Hsu

Rayliant Global Advisors; Research Affiliates, LLC; University of California, Los Angeles - Anderson School of Business

Philip Moore

Pacific Investment Consultants, LLC

Multiple version iconThere are 2 versions of this paper

Abstract

A trillion-dollar industry is based on investing in or benchmarking to capitalization-weighted indexes, even though the finance literature rejects the mean-variance efficiency of such indexes. This study investigates whether stock market indexes based on an array of cap-indifferent measures of company size are more mean-variance efficient than those based on market cap. These Fundamental indexes were found to deliver consistent, significant benefits relative to standard cap-weighted indexes. The true importance of the difference may have been best noted by Benjamin Graham: In the short run, the market is a voting machine, but in the long run, it is a weighing machine.

Keywords: Investment Theory, Portfolio Theory, Portfolio Management, Equity Strategies, Performance Measurement and Evaluation, Performance Measurement, Equity Investments, Fundamental Analysis and Valuation Models

Suggested Citation

Arnott, Robert D. and Hsu, Jason C. and Moore, Philip, Fundamental Indexation. Financial Analysts Journal, Vol. 61, No. 2, pp. 83-99, March/April 2005. Available at SSRN: https://ssrn.com/abstract=713865

Robert D. Arnott (Contact Author)

Research Affiliates, LLC ( email )

620 Newport Center Dr
Ste 900
Newport Beach, CA 92660
United States
949-325-8700 (Phone)
949-325-8901 (Fax)

HOME PAGE: http://www.researchaffiliates.com/Our%20Firm/Our%20Team/Pages/Rob-Arnott.aspx

Jason C. Hsu

Rayliant Global Advisors ( email )

Hong Kong

Research Affiliates, LLC ( email )

620 Newport Center Dr
Suite 900
Newport Beach, CA 92660
United States

HOME PAGE: http://www.jasonhsu.org

University of California, Los Angeles - Anderson School of Business

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Philip Moore

Pacific Investment Consultants, LLC ( email )

8909 Rubio Av
Los Angeles, CA 91343
United States
747-253-1295 (Phone)

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