22 Pages Posted: 14 Oct 2010
Date Written: July 31, 2010
Equal weighting is factor indifferent. It randomizes factor mispricing and is thus an attractive option for proponents of the theory that the market is inefficient and, at times, misprices factors. In January 2003, the S&P 500 Equal Weight Index (EWI) was introduced, pioneering the subsequent development of non-capitalization weighted indices catering to those investors questioning market efficiency. Criticism of equal weighted indices has centered on increased turnover and capacity constraints relative to market capitalization weighted indices. While true in abstract theory, neither is a serious hurdle in practice.
Keywords: S&P 500 Equal Weight Index, equal weighting, S&P 500
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