Is Fundamental Indexation able to time the market? Evidence from the Dow Jones Industrial Average and the Russell 1000

Shi Doris Chen, Michael Joseph Dempsey, Paul Richard Lajbcygier

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

Abstract

Fundamental Indexation weights stock according to a firm s economic size, not stock price or market capitalization. This means that at least in theory, unlike traditional market capitalization weighted indexes, it prevents overinvestment in overpriced stock and vice versa. It should therefore effectively time the market by avoiding incorrect investment in cyclically mispriced stock. We ascertain if Fundamental Indexation outperforms traditional indexing and whether any outperformance can be attributed to market timing. Using almost fifty years of Dow Jones Industrial Average index and Russell 1000 index returns, we find some evidence of limited market timing but no evidence of overall positive abnormal performance.
Original languageEnglish
Pages (from-to)162 - 177
Number of pages16
JournalJournal of International Financial Markets, Institutions and Money
Volume37
DOIs
Publication statusPublished - 2015

Cite this

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title = "Is Fundamental Indexation able to time the market? Evidence from the Dow Jones Industrial Average and the Russell 1000",
abstract = "Fundamental Indexation weights stock according to a firm s economic size, not stock price or market capitalization. This means that at least in theory, unlike traditional market capitalization weighted indexes, it prevents overinvestment in overpriced stock and vice versa. It should therefore effectively time the market by avoiding incorrect investment in cyclically mispriced stock. We ascertain if Fundamental Indexation outperforms traditional indexing and whether any outperformance can be attributed to market timing. Using almost fifty years of Dow Jones Industrial Average index and Russell 1000 index returns, we find some evidence of limited market timing but no evidence of overall positive abnormal performance.",
author = "Chen, {Shi Doris} and Dempsey, {Michael Joseph} and Lajbcygier, {Paul Richard}",
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Is Fundamental Indexation able to time the market? Evidence from the Dow Jones Industrial Average and the Russell 1000. / Chen, Shi Doris; Dempsey, Michael Joseph; Lajbcygier, Paul Richard.

In: Journal of International Financial Markets, Institutions and Money, Vol. 37, 2015, p. 162 - 177.

Research output: Contribution to journalArticleResearchpeer-review

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