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The index fund is a popular goods after 1970''s , and its most
significant characterictic is to simulate one fund of market
portfolios. The basic theory beyond the finanical irroation is
that the market is efficient. Consequently, the mutual fund
managers can''t beat the market in the long run, so the
conservat method is to make the index fund performance keep up
with the market, not beaten by the market. Under these
circumstances , the index fund only the has systematic risk and
it can also diversify the risk effectively . On the other hand
, the index fund only needs fewer researchers and low
management fees, so it''s very cost-saving and convenient to
investors. In the U.S the magnitude of index fund has been
growing very fast , but in Taiwan only Investment & Trust
Corporations has issued this commodity. As a result , the
thesis uses 1990-1994 as sample periods and uses the following
three models to construct Taiwan index fund ; Simple
Capitalization-Weighted Method, Stratified Capitalization-
Weighted Method and the Optimization Approach Model. Some of
the important conclusions are as follow: 1.Under the three
models, the beta and correlation cofficient of the index fund
is near to one, the results shows the construct stock index
fund is good proxy of market portfolio. 2.From 1990-1994, the
Tracking Error of every model and sample groups is decreasing
gradually. 3.The Tracking Error of the Optimization Approach is
smaller than that of the Simple Capitalization-Weighted.
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