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

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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