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: 20 Aug 2019

Date Written: August 21, 2017

Abstract

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

Madhavan, Ananth and Sobczyk, Aleksander and Ang, Andrew, What's in Your Benchmark? A Factor Analysis of Major Market Indexes (August 21, 2017). The Journal of Portfolio Management Quantitative Special Issue 2018, 44 (4) 46-59., Available at SSRN: https://ssrn.com/abstract=3036108 or http://dx.doi.org/10.2139/ssrn.3036108

Ananth Madhavan

BlackRock, Inc. ( email )

400 Howard Street
San Francisco, CA 94105
United States

Aleksander Sobczyk (Contact Author)

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

Andrew Ang

BlackRock, Inc ( email )

55 East 52nd Street
New York City, NY 10055
United States

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