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The Performance of Characteristics‐based Indices1

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  • Noël Amenc
  • Felix Goltz
  • Véronique Le Sourd

Abstract

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.

Suggested Citation

  • Noël Amenc & Felix Goltz & Véronique Le Sourd, 2009. "The Performance of Characteristics‐based Indices1," European Financial Management, European Financial Management Association, vol. 15(2), pages 241-278, March.
    • Handle: RePEc:bla:eufman:v:15:y:2009:i:2:p:241-278
    DOI: 10.1111/j.1468-036X.2008.00468.x
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    References listed on IDEAS

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    2. Anup K. Basu & Brigette Forbes & Henk Berkman, 2014. "Does fundamental indexation lead to better risk-adjusted returns? New evidence from Australian Securities Exchange," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 54(3), pages 699-728, September.
    3. Balatti, Mirco & Brooks, Chris & Kappou, Konstantina, 2017. "Fundamental indexation revisited: New evidence on alpha," International Review of Financial Analysis, Elsevier, vol. 51(C), pages 1-15.
    4. Alles Rodrigues, Alexandre & Casalin, Fabrizio, 2022. "Factor investing in Brazil: Diversifying across factor tilts and allocation strategies," Emerging Markets Review, Elsevier, vol. 52(C).
    5. Raphael Moses Roquete & Ricardo P. C. Leal & Carlos Heitor Campani, 2018. "Corporate governance and fundamental indexation in Brazil," Economics Bulletin, AccessEcon, vol. 38(3), pages 1494-1504.
    6. Rasha Tawfiq Abadi & Florinda Silva, 2022. "Do Islamic fundamental weighted indices outperform their conventional counterparts? An empirical investigation during the crises in the MENA region," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 12(2), pages 241-266, June.
    7. Wenguang Lin & Gary C. Sanger, 2019. "An alternative fundamental weighting scheme based on enterprise value multiple," Journal of Asset Management, Palgrave Macmillan, vol. 20(2), pages 146-156, March.
    8. Brigette Forbes & Anup Basu, 2011. "Does Fundamental Indexation Lead to Better Risk Adjusted Returns? New Evidence from Australian Securities Exchange," School of Economics and Finance Discussion Papers and Working Papers Series 275, School of Economics and Finance, Queensland University of Technology.
    9. Ardia, David & Boudt, Kris & Wauters, Marjan, 2016. "The economic benefits of market timing the style allocation of characteristic-based portfolios," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 38-62.
    10. Michael Ludwig & Herbert G. Mayer & Andreas W. Rathgeber & Christina Spriegel & Florian Vogg, 2017. "A truly market-value weighted commodity index," Journal of Asset Management, Palgrave Macmillan, vol. 18(3), pages 222-242, May.
    11. Feng, Wenjun & Zhang, Zhengjun, 2023. "Risk-weighted cryptocurrency indices," Finance Research Letters, Elsevier, vol. 51(C).
    12. Isaac T. Tabner, 2012. "In Defence of Capitalisation Weights: Evidence from the FTSE 100 and S&P 500 Indices," European Financial Management, European Financial Management Association, vol. 18(1), pages 142-161, January.

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