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Does fundamental indexation lead to better risk‐adjusted returns? New evidence from A ustralian Securities Exchange
Author(s) -
Basu Anup K.,
Forbes Brigette
Publication year - 2014
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12016
Subject(s) - indexation , economics , econometrics , momentum (technical analysis) , index (typography) , transaction cost , database transaction , monetary economics , excess return , value (mathematics) , market capitalization , financial economics , mathematics , statistics , microeconomics , computer science , monetary policy , geography , programming language , context (archaeology) , world wide web , archaeology , stock market
Abstract We investigate the claims of superiority of fundamental indexation strategy over capitalisation‐weighted indexation using data for A ustralian S ecurities E xchange 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 A ustralian 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.