Research and publications

Does Finance Theory Make The Case For Capitalisation-Weighting Indexing?

Proponents of cap-weighted stock market indices often argue that such indices provide efficient risk/return portfolios. This paper reviews the evidence in the academic literature and concludes that ...

Author(s) :

Felix Goltz, Véronique Le Sourd

Summary :

Proponents of cap-weighted stock market indices often argue that such indices provide efficient risk/return portfolios. This paper reviews the evidence in the academic literature and concludes that only under very unrealistic assumptions would such indices be efficient investments. In the presence of realistic constraints and frictions, cap-weighted indices cannot, according to the academic literature, be expected to be efficient investments. A revisited version of this working paper was published in the Fall 2011 issue of the Journal of Index Investing. 

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Type : EDHEC Publication
Date : 01/01/2010
Keywords :

Indices and Benchmarking