The Global Rise of the Value-Weighted Portfolio
Hong Kong University of Science & Technology - HKUST School of Business and Management
University of Melbourne - Department of Finance; Financial Research Network (FIRN)
AFA 2007 Chicago Meetings Paper
We do three things in this paper. We first develop a metric to measure the popularity of the value-weighted portfolio in a stock market. We use our metric to document that, though the value-weighted portfolio is less popular in emerging markets than in developed markets, its popularity is increasing everywhere. In the United States, for example, trading in the value-weighted portfolio could only explain 32% of trading volume in the 1920s, but can explain 68% in the 2000s. Finally, as we have better data for the United States, we explore why the value-weighted portfolio is becoming more popular.
Number of Pages in PDF File: 35
Keywords: portfolio theory, value-weighted portfolio, diversification, indexing, stock picking
JEL Classification: G11, G14, G15
Date posted: November 18, 2005
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