Update on MSCI Equal Weighted Indices
Research Paper
December 14, 2010
Preview
Some investors argue that the risk of a market capitalization weighted benchmark is not limited to volatility, but also includes other dimensions, such as high concentration, and excess volatility due to pricing inefficiency. Removing the influence of prices from index weighting schemes could address the issues associated with capitalization weighted benchmarks. Historically, equal weighting has been one such approach.
The MSCI Equal Weighted Indices offer an alternative to market capitalization weighted indices. In the MSCI Equal Weighted Indices, each security is weighted equally at the quarterly index rebalancing. Weights may fluctuate between rebalancings based on the performance of each security. This alternative weighting methodology removes the influence of prices from the market capitalization weighting scheme at each index rebalancing. Equal weighted portfolios may provide a potential way for earning the small cap premium and avoiding the "bubble traps" or pricing inefficiencies in security prices.
The MSCI Equal Weighted Indices offer an alternative to market capitalization weighted indices. In the MSCI Equal Weighted Indices, each security is weighted equally at the quarterly index rebalancing. Weights may fluctuate between rebalancings based on the performance of each security. This alternative weighting methodology removes the influence of prices from the market capitalization weighting scheme at each index rebalancing. Equal weighted portfolios may provide a potential way for earning the small cap premium and avoiding the "bubble traps" or pricing inefficiencies in security prices.
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