Show that the value stock premium is the key determinant of the fundamental index premium observed in Swedish empirical data and why fundamental indices tend to display superior performance metrics such as high Sharpe ratios. In sharp contrast with the pioneering research by Robert Arnott and all past Swedish research, I find hardly any evidence that a fundamental index strategy would generate excess return. I highlight some major flaws in the Mr. Arnotts fundamental index logic and show there are rational high-risk-high-return explanations behind any fundamental index premium observed. The key conclusion is that there is no proof that fundamental indexation is a superior strategy. Swedish investors should not poor their money into an investment strategy motivated by irrational logic and irrational studies of Swedish empirical data.
II. THEORETICAL FRAMEWORK
Author: JAN OLOF ANDERSSON
Source: Stockholm School of Economics