Correspondence: Vesa Puttonen, Helsinki School of Economics, Runeberginkatu 22-24, FI-00100 Helsinki, Finland. Tel: +358 9 43138405; Fax: 358 9 43138678; E-mail: vesa.puttonen@hse.fi

¹graduated as MSc (Econ) from Helsinki School of Economics (major in finance). He works as a project controller at ABB.

²is Professor of Finance at the Helsinki School of Economics. His areas of expertise include topics such as risk management, derivatives, mutual funds and behavioural finance. He acts as Chairman of the Board of Arvo Asset Management Ltd.

Received 26 October 2007; Revised 26 October 2007.

Abstract

We examine the benefits of fundamental indexation using European data. Our findings suggest that by re-weighting a capitalisation-weighted market index by certain fundamental values, it is possible to produce consistently higher returns and higher risk-adjusted returns. Some of these fundamental portfolios produce consistent and significant benefits compared to the capitalisation-weighted portfolio. Thus, our results are in line with Arnott et al. (2005) from the US markets.