In this seminar, Paul Kaplan, CFA, addressed how fundamental indexation challenges traditional market-cap indexing by suggesting that market-cap weighting overweights overvalued stocks and underweights undervalued stocks.
In this seminar, Paul Kaplan, CFA, addressed how fundamental indexation challenges traditional market-cap indexing by suggesting that market-cap weighting overweights overvalued stocks and underweights undervalued stocks. The proponents of fundamental indexation tout the superior performance of a mechanically driven construct whose component stock weightings are based on financial variables (book value, earnings, and so on) unrelated to price. Using his recent Graham and Dodd Award winning FAJ article as a starting point, Paul Kaplan sheds light on whether fundamental indexation really does represent a better way to build a “mousetrap.”
This is an archived recording of a live webinar based on the following article:“Why Fundamental Indexation Might—or Might Not—Work” by Paul D. Kaplan, CFA, Financial Analysts Journal, January/February 2008. Please note that text may be difficult to read in this recording.