Based on China’s Stock Market Fundamentals-weighted Index Portfolio Investment Approach and Its Empirical Research
|School||Southwestern University of Finance and Economics|
|Keywords||Fundamental index Market Capitalization-weighted index Investment of Portfolio|
Market cap-weighted index which is the most popular stock market price index generally used as a standard to determine whether it is deservd to be a active investment behavior.Since the1970s, copying and tracking market cap-weighted index of Indexing Investmen that has become one of the most important investment approachs and philosophy in the United States and in the world.Although the market cap-weighted index has many advantages, some scholars and investors try to beat the market in long-term, have questioned the mean-variance efficient market portfolio.Therefore, more and more practitioners and academics seek actively a better indexing investment approachs than market cap-weighted index。In2005, Arott, Hsu and Moore propose formally a Fundamental Indexing investment approach, which contains the index of investment philosophy and is different from the market cap-weighted.The structure of the fundamental indexing is not a market cap-weighted index, but it is insensitive to the price range of financial indicators, such as dividends, earnings, book value, cash flow, sales to determine its weight. Fundamental indexing of investment is as a unique investment strategy index, which has become the fastest growing and the latest risk portfolio management methods by the practitioners in American.Aprrently, the fundamental indexing investment approach is a value investment approach as well-known as early in the financial industry.In essence, the fundamental indexing is a fusion of capitalization weighted index investment approach, and quantitative investment philosophy to active portfolio management methods such as scale,value analysis of correcting the economic fundamentals. The fundamental indexing approach has been more and more attention of theorists and practitioners of the capital markets in developed countries, and has been gradually recognized by the emerging markets. Fundamental indexing is a positive combination of asset allocation within the framework of the traditional index-based investments, whether it is avaible to the Chinese stock market and showed a similar risk-return characteristics in the developed countries.it is a in-depth study of practical problems.This will also help to promote our innovative index products and provide a theoretical basis, and enrich the financial investment theory of China’s securities market, which has a important theoretical significance and academic value.The paper is divided into five chapters.The first chapter is an introduction described that the development of classical portfolio theory, the method of the fundamental investment portfolio as well as research methods, content, meaning, structure.The second chapter is presented the fundamentals-weighted portfolio of the definition and risk-return characteristics, and contact with market capitalization-weighted portfolio. The theoretical back ground of the fundamentals of the portfolio is described in details. The Research Literature Review and the practical significance of the fundamentals weighted portfolio approach is presented in China’s securities market。The third chapter is derived from the mathematical methods on the fundamentals of portfolio approach, and pointes out the construction and the weight estimation method.The forth Chapter verfies China’s stock market of noise. Building the fundamentals of Single year and multi-year average of the moving average method estimates fundamentals value weights, and verifies the fundamentals weighted portfolio approach is much more better than cap-weight portfolio approach in the stock market of china.The fifth Chapter summarizes several conclusions. Firstly, China’s Shanghai and Shenzhen stock market exist noises, the theoretical basis of the fundamentals-weighted portfolio in the Chinese stock market is established. Secondly, the fundamental index of defintion is redefined.In mathematics,we analyze and compare with the construction methods of fundamentals-weighted index and market capitalization weighted index. Market capitalization weighted index exi insts mis-pricing, which gaves overvalued stocks too much weight and undervalued stock with the less the weight, performances by drag. Fundamental index can break the link between the mispricing and investment of portfolio weights, is a good representative of the market neutral index. Thirdly, the fundamentals indexing of the advantages in the Chinese stock market has been verified in empiricality. Whether it is in bear and bull market circumstances, the use of the data structure of the Chinese stock market fundamentals weighted portfolio are better than market capitalization weighted portfolio in normal, which is reflected the advantage of the fundamentals-weighted portfolio. But the fundamentals weighted portfolio volatility investment risk much more than the market capitalization weighted portfolio, and is not the same as it in the U.S. market. The reason is that China’s stock market on the Chinese stock market development are less than perfect, is still subject to national policies, the noise of the stock market is not smooth, and sometimes deviates from the mean.The innovation of this paper is mainly reflected in the following aspects: Firstly, the literature the Chinese knowledge Internet can be found in the Chinese knowledge Internet in this field, there is only a paper of the Chinese stock market fundamentals value-weighted portfolio and have no similar papers, I hope that this paper can provide a reference for future researchers. Secondly, it is officially released on July1,2011the Shanghai the fundamentals Index Series, including the fundamentals of SSE200Index, the fundamentals of the fundamentals of SSE300Index and SSE500Index, this innovative index has not to explore in theory。 Thirdly, it verifies the applicability of the fundamental index in China in the first time.