Fundamental Indexation in European Emerging Markets

Miziołek, Tomasz; Zaremba, Adam

doi:10.2139/ssrn.2778000

Cited by 3 publications

(3 citation statements)

References 41 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…More recently, Balatti et al (2017) in the UK equity markets confirm that the FW portfolios outperform the CW portfolio. Conversely, Miziolek and Zaremba (2017) find that FW portfolios generate similar risk-adjusted returns to those of the CW portfolio. They conduct their study on Poland, Russia, and Turkey since they are the three largest European emerging markets.…”

Section: Literature Reviewmentioning

confidence: 76%

Do fundamental portfolios outperform in the MENA equity markets?

Abadi

Silva

2019

IMEFM

View full text Add to dashboard Cite

Purpose This study aims to investigate the performance of fundamental weighted portfolios (using sales, cash flows, dividends, book values and a composite of all these variables), an equal weighted portfolio and a smoothed cap-weighted (CW) portfolio in Middle East and North Africa (MENA) markets. The performance of these portfolios is compared with that of a CW portfolio for the period 2005 to 2015. Design/methodology/approach The portfolios are formed using different concentration levels, different construction schemes and different sub-regions. The performance is assessed using a large set of risk-adjusted performance measures, including more robust measures in the context of multi-factor models, such as the Fama and French (1993) three-factor model, the Fama and French (2015) five-factor model and a seven-factor model. Findings The results show that the fundamental portfolios, with the exception of the sales portfolio, underperform the CW portfolio using either the traditional or more robust risk-adjusted performance measures. The underperformance of the fundamental portfolios is found to be robust using different concentration levels, different construction schemes and different sub-regions. The results also show that the equal weighted portfolio outperforms the CW portfolio using traditional risk-adjusted measures. However, after controlling for additional risk factors, this outperformance disappears. Practical implications The failure of fundamental indexation in the emerging markets could help the researchers and the academics to search for the best weighting method that could be used as an alternative to the CW indexation method. Originality/value The results of the study add evidence to the debatable propositions on the performance of fundamental portfolios in emerging markets. Furthermore, the findings may help domestic and international investors, practitioners and decision-makers to deepen their knowledge in terms of the best portfolio construction scheme in the MENA region.

show abstract

Section: Literature Reviewmentioning

confidence: 76%

Do fundamental portfolios outperform in the MENA equity markets?

Abadi

Silva

2019

IMEFM

View full text Add to dashboard Cite

show abstract

“…However, the EW portfolio shows better performance than the FW portfolio built following Arnott, Hsu and West (2008). Miziolek and Zaremba (2017) analyze the performance of FW portfolios in the three largest European emerging markets, namely, Russia, Poland, and Turkey, over the period from 2002 to 2015, finding higher returns than CW indices after accounting for transaction costs. Chow, Hsu, Kalesnik and Little (2011) measure that CW portfolios have an annual turnover of 8.4% when considering the global market (1987-2009 period) and 6.69% when considering the U.S. market (1964-2009 period), while FW portfolios have a 14.9% and 13.6% turnover, respectively.…”

Section: 2mentioning

confidence: 99%

Fundamentals-weighting vs. Capitalization-weighting: An Empirical Comparison

Abate¹,

Bonafini²,

Ferrari³

2021

jfia

View full text Add to dashboard Cite

Following the criticism surrounding capitalization-weighting, both academic and practitioner communities have developed alternative approaches to portfolio construction. We analyze one of these approaches, fundamentals-based weighting, which identifies the weights of portfolio constituents on the basis of their market multiples and accounting ratios. Our analysis is carried out on four fundamentals-weighted portfolios (FW) based on four different weighting variants, the capitalization-weighted portfolio (CW), and the equally-weighted (EW) portfolio, from January 2004 to December 2020, and in two subperiods (2004–2011 and 2011–2020). We find that in the first subperiod, the EW portfolio shows the highest risk-adjusted performance, followed by the FW portfolios. In contrast, in the second subperiod and in the period as a whole, the CW portfolio outperforms the other portfolios in terms of risk-adjusted performance. Overall, we conclude that both FW portfolios and the EW portfolio do not exhibit superior results when compared with the classic CW portfolio. Therefore, we have shown that FW and EW techniques provide superior risk-adjusted performance only during a period of exceptional financial turmoil. However, under normal conditions, they cannot be recommended as a rational investment strategy. JEL classification numbers: G11, G14. Keywords: Fundamental weighting, Capitalization weighting, Equal weighting, Value investing, Indexed investing.

show abstract

“…At a global level too, FI portfolios have the edge over the CWI, and the abnormal returns are mostly attributed to value premium and size premium (Walkshausl and Lobe, 2010). FI portfolios outperform the CWI even after controlling trading costs in emerging European markets (Miziołek and Zaremba, 2017). The superiority of FI portfolios is limited to the frontier and a few emerging countries and is mainly attributed to value premium (Zaremba and Miziołek, 2017).…”

Section: Introductionmentioning

confidence: 99%

Does the fundamental indexation portfolio perform better? An Indian investigation

Kumar

Tiwari

2021

ARJ

View full text Add to dashboard Cite

Purpose This study aims to compare the fundamental indexation (FI) portfolio vis-à-vis the cap-weighted index (CWI). It also explored the return-generating attributes of the FI portfolios. Design/methodology/approach This study extracted relevant data from the Centre for Monitoring Indian Economy’s Prowess database from March 1996 to March 2017 from a sample of National Stock Exchange (NSE) 500 companies. The FI portfolios were constructed with First_50 and Next_50 stocks using the latest and five years of trailing average aggregations. Further, the regression technique was used to identify the return-generating attributes of FI portfolios. Findings It was found that the FI portfolios based on First_50 and Next_50 stocks outperformed the CWI (i.e. NSE_First_50 and NSE_Next_50) in the Indian capital market, and between the two, the FI portfolios based on Next_50 stocks were superior to the FI portfolios based on First_50 stocks. The cross-sectional superiority of FI portfolios is obvious if they are sorted according to four fundamentals, namely, total income, sales, operating cash flows and profit before depreciation interest tax and amortisation. The return-generating process of FI portfolios is well-explained by market premium followed by value premium and investment premium. Practical implications This study may enable portfolio managers and investors to measure FI portfolios’ superiority in the Indian capital market and identify the return-generating attributes of FI portfolios so that the loadings can be switched amongst different priced factors for higher yield. Further, this study extends the FI literature, providing evidence from one of the world’s fastest-growing economies. Originality/value To the best of the knowledge, this is amongst the first few studies to explore the performance of FI portfolios vis-à-vis CWIs in India, and to use Fama and French (2015) asset pricing models to understand the return-generating attributes of FI portfolios. It is also novel in the sense that it considers the FI portfolios for a longer duration, predating 1997 and coinciding with the inception of CWIs, namely, NSE_First_50 (inception: 1995) and NSE_Next_50 (inception: 1996), reducing the apprehensions of data-snooping biases.

show abstract

Fundamental Indexation in European Emerging Markets

Cited by 3 publications

References 41 publications

Do fundamental portfolios outperform in the MENA equity markets?

Do fundamental portfolios outperform in the MENA equity markets?

Fundamentals-weighting vs. Capitalization-weighting: An Empirical Comparison

Does the fundamental indexation portfolio perform better? An Indian investigation

Contact Info

Product

Resources

About