A simulated portfolio deliberately based on stale price data — a Rip Van Winkle index fund — 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...

Traditional capitalization-weighted indices generally add stocks with high valuation multiples after persistent outperformance and sell stocks at low valuation multiples after persistent underperformance. For the S&P 500 Index, in the year after a change in the index, additions lose relative to...