@article {Arnott50, author = {Robert Arnott and Noah Beck and Vitali Kalesnik}, title = {Rip Van Winkle Indexing}, volume = {41}, number = {4}, pages = {50--67}, year = {2015}, doi = {10.3905/jpm.2015.41.4.050}, publisher = {Institutional Investor Journals Umbrella}, abstract = {A simulated portfolio deliberately based on stale price data{\textemdash}a Rip Van Winkle index fund{\textemdash}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{\textquoteright}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{\textquoteright}s current price or market capitalization.TOPICS: Simulations, mutual fund performance, passive strategies}, issn = {0095-4918}, URL = {https://jpm.pm-research.com/content/41/4/50}, eprint = {https://jpm.pm-research.com/content/41/4/50.full.pdf}, journal = {The Journal of Portfolio Management} }