Comments on: Dow Jones joins 130/30 index parade http://allaboutalpha.com/blog/2008/03/16/dow-jones-joins-13030-index-parade/ Hedge funds, portable alpha, 130/30 and alpha-centric investing Wed, 10 Mar 2010 21:44:24 +0000 http://wordpress.org/?v=abc hourly 1 By: Julian Koski http://allaboutalpha.com/blog/2008/03/16/dow-jones-joins-13030-index-parade/comment-page-1/#comment-95450 Julian Koski Fri, 04 Apr 2008 13:28:46 +0000 http://allaboutalpha.com/blog/2008/03/16/dow-jones-joins-13030-index-parade/#comment-95450 Just to be clear, we are not predicting stock prices either. RBP is used to determine the likelihood that the management of a company will deliver the performance to support the price of the stock. Dow Jones uses the RBP probability to select stocks form the DJ Wilshire Large Cap universe, however for the thirty long and short they are equally weighted, therefore “investable” concerns shouldn’t be an issue. We are not weighting the index using RBP. Just to be clear, we are not predicting stock prices either. RBP is used to determine the likelihood that the management of a company will deliver the performance to support the price of the stock. Dow Jones uses the RBP probability to select stocks form the DJ Wilshire Large Cap universe, however for the thirty long and short they are equally weighted, therefore “investable” concerns shouldn’t be an issue. We are not weighting the index using RBP.

]]> By: Igor Yelnik http://allaboutalpha.com/blog/2008/03/16/dow-jones-joins-13030-index-parade/comment-page-1/#comment-92258 Igor Yelnik Thu, 20 Mar 2008 09:39:49 +0000 http://allaboutalpha.com/blog/2008/03/16/dow-jones-joins-13030-index-parade/#comment-92258 You write: "the particular security-selection model used by Dow Jones is reminiscent of Research Affiliates’ Fundamental Indices in that they attempt to predict future stock prices based on fundamental business metrics such as revenue (what Research Affiliates calls a company’s “economic footprint”)." To the best of my knowledge, the Research Affiliates Fundamental Indices DO NOT attempt to predict future stock prices! In fact, they do not attempt to predict anything. The idea behind the concept is to avoid the bias pertinent to cap-weighted indices that, assuming the market is not efficient, tend to overweigh overvalued companies and underweigh undervalued ones. If one cuts the link between the price (or market capitalisation) and the weight she gets rid of this unwanted effect. The next step is to make the index investable, i.e. one would still want to invest more in bigger companies and less in smaller ones. For this purpose the "economic footprint", or a fundamental measure of size is used. You write:
“the particular security-selection model used by Dow Jones is reminiscent of Research Affiliates’ Fundamental Indices in that they attempt to predict future stock prices based on fundamental business metrics such as revenue (what Research Affiliates calls a company’s “economic footprint”).”

To the best of my knowledge, the Research Affiliates Fundamental Indices DO NOT attempt to predict future stock prices! In fact, they do not attempt to predict anything.
The idea behind the concept is to avoid the bias pertinent to cap-weighted indices that, assuming the market is not efficient, tend to overweigh overvalued companies and underweigh undervalued ones.
If one cuts the link between the price (or market capitalisation) and the weight she gets rid of this unwanted effect.
The next step is to make the index investable, i.e. one would still want to invest more in bigger companies and less in smaller ones. For this purpose the “economic footprint”, or a fundamental measure of size is used.

]]> By: Monday links: long memories « Abnormal Returns http://allaboutalpha.com/blog/2008/03/16/dow-jones-joins-13030-index-parade/comment-page-1/#comment-91551 Monday links: long memories « Abnormal Returns Mon, 17 Mar 2008 16:56:50 +0000 http://allaboutalpha.com/blog/2008/03/16/dow-jones-joins-13030-index-parade/#comment-91551 [...] How to build a 130/30 index. (All About Alpha) [...] [...] How to build a 130/30 index. (All About Alpha) [...]

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