RT Journal Article
SR Electronic
T1 Nonlinear Exposures of Fundamental Index Returns
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 96
OP 106
DO 10.3905/jwm.2010.13.3.096
VO 13
IS 3
A1 Jarkko Peltomäki
YR 2010
UL https://pm-research.com/content/13/3/96.abstract
AB The Research Affiliates Index (RAFI) methodology is a fundamental weighting strategy which has rapidly built up its popularity and investors can invest in the strategy using Exchange Traded Funds (ETFs). In this article, these investment vehicles are investigated with a consideration of their nonlinear exposure to their benchmark factors. The results provide some evidence for out-performance of the RAFI methodology. Further, portfolios following the strategy may exhibit some spurious market timing characteristics which can be explained as an omitted variable bias in the analysis. The evidence for omitted variables after adjusting for book-to-market anomaly implies that fundamental indexation is not just about value bias.TOPICS: Exchange-traded funds and applications, fundamental equity analysis, performance measurement