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Fundamental Indices February 25, 2010

Posted by federalist in Finance.
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Assuming stock prices have any noise (and they certainly do) a smoothed-price-weighted index will outperform a market-cap-weighted index. (See also here and here.) The downside of such a strategy (as with anything other than a market-cap-weighted index) are the tax and transaction costs of turnover, which may not outweigh the benefits.

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