Academics at Cass Business School used a computer to simulate the stock-picking abilities of a monkey and pitted these random choices against a traditional market capitalisation weighted index to discover that the chimp won every time.
The study, based on monthly US share data from 1968 to 2011, found nearly all 10m indices weighted by chance delivered vastly superior returns to the so-called market cap approach where the percentage of a stock allocated to an index is weighted according to a firm’s size.
“Nearly every one of the 10 million monkey fund mangers beat the performance of the market cap weighted index. We should perhaps be benchmarking our fund managers against monkeys rather than against a cap-weighted index,” said Professor Andrew Clare, co-author of the study.
However, in a finding that will provide some solace to fund managers the research found that certain alternative indices – such as an index where stocks were weighted according to sales – trumped the chimps with such indices beating 99 per cent of the monkeys’ randomly constructed indices.
“All of the 13 alternative indices we studied produced better risk-adjusted returns than a passive exposure to a market-cap weighted index,” added report co-author Dr Nick Motson.