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Fundamental Indexation in European Emerging Markets

Author

Listed:
  • Tomasz MIZIOLEK

    (University of Lodz, Faculty of Economics and Sociology, 3/5 POW Street 90-255 Lodz, Poland.)

  • Adam ZAREMBA

    (Poznan University of Economics and Business, Poland.)

Abstract

Fundamental indexation for common stocks refers to weighting portfolio constituents on the basis of fundamental variables. We examine the cost efficiency of this approach in the three largest European emerging markets: Poland, Russia, and Turkey. We form portfolios based net profits, sales, book values, and dividends, and evaluate their performance in the 2002-2015 period. The fundamentally weighted portfolios deliver higher risk-adjusted returns than standard capitalization-weighted portfolios, but the differences are predominantly statistically insignificant. The abnormal performance remains positive after controlling for trading costs. As a result, the study offers a cost- effective portfolio construction method that could be implemented by international investment managers with a focus on emerging markets.

Suggested Citation

  • Tomasz MIZIOLEK & Adam ZAREMBA, 2017. "Fundamental Indexation in European Emerging Markets," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 23-37, March.
    • Handle: RePEc:rjr:romjef:v::y:2017:i:1:p:23-37
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    References listed on IDEAS

    as
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    Cited by:

    1. Guido Abate & Tommaso Bonafini & Pierpaolo Ferrari, 2021. "Fundamentals-weighting vs. Capitalization-weighting: An Empirical Comparison," Journal of Finance and Investment Analysis, SCIENPRESS Ltd, vol. 10(2), pages 1-3.
    2. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, June.
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    4. Dariusz FILIP, 2020. "Are Fund Attributes Risk Drivers? Evidence for the Polish Mutual Funds," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 22-36, March.

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    More about this item

    Keywords

    fundamental indexation; value investing; trading costs; emerging markets;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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