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Practical Applications of Rip Van Winkle Indexing

Robert D Arnott, Noah Beck, Vitali Kalesnik and Gauri Goyal
Practical Applications Winter 2016, 3 (3) DOI: https://doi.org/10.3905/pa.2016.3.3.138
Robert D Arnott
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Noah Beck
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Vitali Kalesnik
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Gauri Goyal
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Rip Van Winkle Indexing Robert D Arnott Noah Beck Vitali Kalesnik

Abstract

A new piece of research debunks the efficacy of the link between current price and market-cap weighting in stock selection, using a hypothetical “Rip Van Winkle” index portfolio based on stale, 20-year-old prices. When old Rip wakes up, he finds that his strategy outperforms a portfolio using current prices of the largest market-cap-weighted stocks.

Co-authors Robert Arnott , Noah Beck and Vitali Kalesnik of Research Affiliates created this controlled experiment to provide a fresh perspective on the impact of prices on cap-weighted approaches, and find that such approaches come up short.

“It’s another nail in the coffin of efficient market theory. You can ignore 20 years of information—and still outperform!” says Arnott.

  • The content is made available for your general information and use and is not intended for trading or other specific investment advice purposes or to address your particular requirements. We do not represent or endorse the accuracy or reliability of any advice, opinion, statement, or other information provided any user of this publication. Reliance upon any opinion, advice, statement, or other information shall also be at your own risk. Independent advice should be obtained before making any such decision. Any arrangements made between you and any third party named in this publication are at your sole risk.
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Practical Applications: 3 (3)
Practical Applications
Vol. 3, Issue 3
Winter 2016
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Practical Applications of Rip Van Winkle Indexing
Robert D Arnott, Noah Beck, Vitali Kalesnik
Practical Applications Jan 2016, 3 (3) DOI: 10.3905/pa.2016.3.3.138

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Practical Applications of Rip Van Winkle Indexing
Robert D Arnott, Noah Beck, Vitali Kalesnik
Practical Applications Jan 2016, 3 (3) DOI: 10.3905/pa.2016.3.3.138
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