Abstract
We investigate whether adding fundamental indices to a portfolio provides increased diversification benefits. Our results show that equity investors who care only about portfolio mean and variance will benefit from including a fundamental index in their portfolios. This benefit is especially pronounced during periods of average stock market volatility. We also find that investors can construct a do-it-yourself buy-and-hold replicating portfolio that frequently outperforms the Research Affiliates Fundamental Index (RAFI ), exchange traded fund out-of-sample.
Original language | English |
---|---|
Pages (from-to) | 210-225 |
Number of pages | 16 |
Journal | Journal of Asset Management |
Volume | 13 |
Issue number | 3 |
DOIs | |
Publication status | Published - Jun 2012 |
Keywords
- fundamental indexes
- mean-variance spanning
- portfolio diversification