Thanks for the replay. It is much more constructive to discuss a paper with its author.
Per my intellectually dishonest comment, and your subsequent response. "where is the fun in that?":
The fun in that is accurately and honestly present your results. It is fine to not present the tables where you show only 2 of the indices (out of how many? if many than this is just noise) have significant 4 factor alphas; but you don't ever reference the Chow et al result you just told us about. You can't assume the audience of your paper has read the entire bibliography, and frankly the Chow result is huge.
Not including any reference to the Chow result makes me say "WOW this is amazing," with regards to the findings of your paper.
Inclusion of the Chow result makes me say "so what," with regards to the findings of your paper.
This is not something a reader should have to ask to see. The reader should expect the results are not cherry picked to present the strongest argument by the authors, i.e., presenting sharp ratios and CAPM alphas rather than 4-Factor alphas.
Per "Also if you base your analysis on the Fama French factors, have you ever asked yourself why?" I would say per the Roll 1977 CAPM argument and subsequent empirical papers there after the CAPM alpha stinks, and the Fama french + Carhart factor is the best we have.
If you want to dispute the 4-factor model, that is an entire other paper in itself.
If you really feel so strongly against the 4-factor model you have to strongly motivate this in the paper.
Also why not use the DGTW adjusted abnormal returns then (another accepted method of risk adjustment)?
I would turn this question around and say have you ever asked yourself why you didn't us them?
One of our contributions is to provide a much richer analysis of the various factor tilts of the indices compared to market cap, because we actually knew the weights of each stock each year we did not have to rely on regressions & instead can provide the tilt for each decile which are all illustrated in the appendices.
Another contribution is to test whether the Sharpe ratios are statistically different from market cap using a robust statistical test. Here we found that both Equal Risk Contribution & Inverse Vol weighting as well as two of the fundamental weighting schemes (plus the composite) were in fact statistically (and I suppose economically) different.
Thats fine, focus more on these and less on the faux abnormal returns to strengthen paper.
Finally there is no reason that the market cap weighted portfolio of 1,000 stocks is efficient.
There are plenty of reasons that the market cap weighted portfolio of stocks is efficient. They are however contended. To say there is NO
reason that the market cap weighted portfolio of stocks is efficient, is to strong. But whatever, I agree with you that in a multi-factor world, portfolios that weight towrds HML, SMB and UMD factors can produce higher sharp ratios. But this is more of an argument that the sharpe ratios are flawed, not that the market cap weighted portfolio is inefficient.
Also as many have said earlier in the discussion thread, from an index-implementation perspective, market-weighted portfolios are much more cost effective to implement as there is less portfolio turnover.