Portal de Periódicos da CAPES

Rip Van Winkle Indexing

2015; Euromoney Institutional Investor; Volume: 41; Issue: 4 Linguagem: Inglês

10.3905/jpm.2015.41.4.050

2168-8656

Robert D. Arnott, Noah Beck, Vitali Kalesnik,

Stochastic processes and financial applications

A simulated portfolio deliberately based on stale price data—a Rip Van Winkle index fund—has both substantially higher performance and lower volatility than a portfolio that uses up-to-date cap weights. This holds true over the past 67 years in the United States and over shorter timespans in the world’s developed and emerging economies. An examination of the term structure of the stale price anomaly demonstrates that, beyond one year (when short-term momentum prevails), the older the data, the better the performance. In addition, a portfolio based on 20-year-old stale prices adds fully one-third as much risk-adjusted alpha as a hypothetical portfolio based on 20 years of look-ahead clairvoyance. Stale cap weighting is not a sensible strategy, but it sheds more light on the rather stark inadequacies of weighting a portfolio in proportion to a firm’s current price or market capitalization. TOPICS: Simulations , mutual fund performance , passive strategies