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Does Finance Theory Make the Case for Capitalisation- Weighted Indexing?

Authors :
Felix Goltz

Head of applied research at EDHEC-Risk Institute

Véronique Le Sourd
Senior research engineer at EDHEC-Risk Institute.

Proponents of cap-weighted stock market indices often argue that such indices provide efficient risk/return portfolios.

EDHEC Publication

EDHEC Publication

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.
Type :
EDHEC Publication
Dates :
Created on January 11, 2010
Further information :
For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ ]

The contents of this paper do not necessarily reflect the opinions of EDHEC Business School.


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