Fundamental Weighting

14 Pages Posted: 4 Dec 2015

See all articles by Ben S. Branch

Ben S. Branch

University of Massachusetts Amherst - Isenberg School of Management

Li Cai

Illinois Institute of Technology - Stuart School of Business, IIT

Multiple version iconThere are 2 versions of this paper

Date Written: 2010

Abstract

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.

Suggested Citation

Branch, Ben S. and Cai, Li, Fundamental Weighting (2010). Journal of Applied Finance (Formerly Financial Practice and Education), Vol. 20, No. 1, 2010, Available at SSRN: https://ssrn.com/abstract=2693090

Ben S. Branch (Contact Author)

University of Massachusetts Amherst - Isenberg School of Management ( email )

Room 201A
Amherst, MA 01003-4910
United States
413-545-5690 (Phone)
413-545-3858 (Fax)

Li Cai

Illinois Institute of Technology - Stuart School of Business, IIT ( email )

Chicago, IL 60661
United States

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