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The Performance of Characteristics‐based Indices 1
Author(s) -
Amenc Noël,
Goltz Felix,
Le Sourd Véronique
Publication year - 2009
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2008.00468.x
Subject(s) - tilt (camera) , sharpe ratio , statistics , index (typography) , value (mathematics) , mathematics , econometrics , set (abstract data type) , economics , computer science , financial economics , portfolio , geometry , world wide web , programming language
This paper analyses a set of characteristics‐based indices that, it has been argued, outperform market cap‐weighted indices. We analyse the performance of an exhaustive list of these indices and show that i) the outperformance over value‐weighted indices may be negative over long time periods, and ii) there is no significant outperformance over equal‐weighted indices. An analysis of the style and sector exposures of characteristics‐based indices reveals a significant value tilt. When this tilt is properly adjusted for, the abnormal returns of these indices decrease considerably. Moreover, it is straightforward to construct portfolios with higher Sharpe ratios than characteristics‐based indices through factor or sector tilts.