The Performance of Fundamental Indexes: An Application on Istanbul Stock Exchange

Year 2020, Volume: 20 Issue: 1, 1 - 18, 30.01.2020

Habib Küçükşahin , Ender Coşkun

https://doi.org/10.21121/eab.595407

Cited By: 1

Abstract

In this study, the performance of the
indexes constructed via fundamental values ​​which are among the alternative
indexing strategies, and the performance of the capitalization-weighted BIST
100 index are compared. The assets, sales, book value, operating profit and net
profit figures in the financial statements are used to construct the
index/portfolio according to the fundamental data. In addition to the indexes
based on these data, a composite index and an equally-weighted index were also
created. The returns of these indices were compared with the performance of the
BIST 100 capitalization-weighted index through various portfolio performance
measures. Among the indexes constructed through the fundamental values, the
assets, book value, operating profit, net profit, and the indexes created by
the 5-year averages of these fundamental variables yield higher returns in the
long term than BIST 100 capitalization-weighted index and this excess return is
statistically significant. This result was supported by the analyses using the
Capital Asset Pricing Model (CAPM) and the Fama-French three factor model. It
was concluded that the indexes (except index created in accordance with the
assets) had significant positive alpha coefficients. The results show that
fundamental indexing strategies can be considered as an important investment
alternative for the investors and that these strategies can create value in the
long term.

Keywords

Smart Beta, Fundamental Indexation, , Index Construction, Capitalization Weighted Index, Borsa Istanbul, Fundamental Weighted Index Performance, Composite Index

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