Journal of Applied Finance, Vol. 20, No. 1, pp. 64-77, 2010
Posted: 4 Jun 2012
Date Written: March 1, 2010
Herein we compare the performance of fundamental weighted indexes to a traditional value weighted index on a back tested basis. Working with the pre-selected S&P 500 components, we isolate the effect of changing the weighing scheme. As an additional test, we transformed the value-weighted measure by taking the square and higher roots in order to test the impact of size dampening transformations. Our results generally support the benefits of indexing with fundamental weights, even after taking account of transactions cost.
Keywords: stock price indexes, price indexes, stocks prices, Standard & Poor's 500 Index, indexes, stock index futures
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