Rafi Replication: Easier Done than Said?

Journal of Asset Management Vol. 13, 3, 210-225

23 Pages Posted: 5 Apr 2013

See all articles by Paskalis Glabadanidis

Paskalis Glabadanidis

University of Adelaide Business School; Financial Research Network (FIRN)

Ivan Obaydin

University of Adelaide - Business School

Ralf Zurbruegg

University of Adelaide; Financial Research Network (FIRN)

Date Written: March 13, 2012

Abstract

We investigate whether adding fundamental indices to a portfolio provides increased diversification benefits. Our results show that equity investors who care only about portfolio mean and variance will benefit from including a fundamental index in their portfolios. This benefit is especially pronounced during periods of average stock market volatility. We also find that investors can construct a do-it-yourself buy-and-hold replicating portfolio that frequently outperforms the RAFI ETF out-of-sample.

Keywords: Fundamental indexes, portfolio diversification, mean-variance spanning

JEL Classification: G11, G12

Suggested Citation

Glabadanidis, Paskalis and Obaydin, Ivan and Zurbruegg, Ralf, Rafi Replication: Easier Done than Said? (March 13, 2012). Journal of Asset Management Vol. 13, 3, 210-225, Available at SSRN: https://ssrn.com/abstract=2244904

Paskalis Glabadanidis (Contact Author)

University of Adelaide Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Ivan Obaydin

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Ralf Zurbruegg

University of Adelaide ( email )

233 North Terrace
Department of Finance
Adelaide SA 5005
Australia
+61 8 8303 5535 (Phone)
+61 8 8303 4368 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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