Fundamental indexation revisited: New evidence on alpha

Mirco Balatti, Chris Brooks and Konstantina Kappou

International Review of Financial Analysis, 2017, vol. 51, issue C, 1-15

Abstract: This study proposes indexing strategies representative of the equity market and based on readily available accounting information. In contrast to the previous literature, we discard balance sheet variables and instead develop two indices that revolve solely around income statement and dividend measures. We find that these indices outperformed the FTSE 100 by 3% on an annual basis over the last 25years, whilst delivering similar or lower volatility. The constructed indices overlap by 90% with the FTSE 100, in terms of their total market capitalisation and constituent members. They have positive and significant alphas in 3- and 4-factor performance attribution models, showing that the performance cannot be explained by value, size, market beta or momentum tilts alone.

Keywords: Indexing; Passive investing; Fundamentally weighted index; Market capitalisation weighted index; Noise in price (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:51:y:2017:i:c:p:1-15

DOI: 10.1016/j.irfa.2017.02.010

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