What's in Your Benchmark? A Factor Analysis of Major Market Indexes
The Journal of Portfolio Management Quantitative Special Issue 2018, 44 (4) 46-59.
Posted: 15 Sep 2017 Last revised: 14 Mar 2019
Date Written: August 21, 2017
We examine the factor exposures of several popular market capitalization indexes and how they vary over time. We find that most market capitalization weight indexes are effectively exposed to only two or three factors, with value and momentum being increasingly dominant. We find that the proportion of the index movements explained by factors has materially increased in recent years, which is consistent with a more top-down, macro-driven environment or the increasing importance of economy-wide risks for financial markets.
Keywords: Factors, Market-Capitalization Benchmarks, Factor Mimicking Portfolios
JEL Classification: G10
Suggested Citation: Suggested Citation