Evaluating the efficiency of index fund selections over the fund's future period

It is well known that index fund optimization is important when hedge trading in a stock market. By "optimization" is meant the optimization of the proportion of funds in the index fund. Index funds consisting of a small number of listed companies are constructed in this paper by means of a genetic algorithm method based on the coefficient of determination between the return rate of the fund price and the changing rate of the market index. The method is examined with numerical experiments applied to the Tokyo Stock Exchange. The results show that the index funds work well in forecasting over a future period when a market index has followed a downward or a flat trend. In addition, we reveal problems arising from this optimization in that the coefficient of determination depends on the characteristics of the scatter diagram between the index fund price and the market index.