Fundamental Indexation in Europe: New Evidence

Enrica Bolognesi and Mattia Pividori

Journal of Financial Management, Markets and Institutions, 2016, issue 2, 103-128

Abstract: Fundamental Indexation proposes an index construction methodology based on several metrics able to describe a firm's «economic footprint». We compare the risk-return profile of fundamental-weighted indexes with their related cap-weighted benchmarks, focusing on the European markets during the period 1999-2013. We provide evidence of the superiority of this approach but, only: 1) if the weighting scheme is based on firm income; 2) during the Internet Bubble Burst; 3) during the realignment phase of stock prices vs firm fundamentals. Using the factor analysis, we provide evidence of high correlation between the selected fundamentals, suggesting the opportunity to simplify the index-weighting scheme.

Keywords: Fundamental indexation; Index design; Financial crises; European equity markets; Value investing; Factor analysis. (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mul:jdp901:doi:10.12831/85432:y:2016:i:2:p:103-128

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