Fundamental indexation revisited: new evidence on alpha

Brooks, C. ORCID: https://orcid.org/0000-0002-2668-1153, Balatti, M. and Kappou, K. ORCID: https://orcid.org/0000-0002-5047-8104 (2017) Fundamental indexation revisited: new evidence on alpha. International Review of Financial Analysis, 51. pp. 1-15. ISSN 1057-5219 doi: 10.1016/j.irfa.2017.02.010

Abstract/Summary

This study proposes indexing strategies representative of the equity market and based on readily available accounting information. In contrast to the previous literature, we discard balance sheet variables and instead develop two indices that revolve solely around income statement and dividend measures. We find that these indices outperformed the FTSE 100 by 3% on an annual basis over the last 25 years, whilst delivering similar or lower volatility. The constructed indices overlap by 90% with the FTSE 100, in terms of their total market capitalisation and constituent members. They have positive and significant alphas in 3- and 4-factor performance attribution models, showing that the performance cannot be explained by value, size, market beta or momentum tilts alone.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/69419
Identification Number/DOI	10.1016/j.irfa.2017.02.010
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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