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Capitalization-weighted index

A capitalization-weighted index, also known as a market-cap-weighted index, is a stock market index in which the components are weighted based on their total market capitalization, calculated as the share price multiplied by the number of outstanding shares, thereby giving larger companies a proportionally greater influence on the index's overall performance and reflecting the broader market's composition more accurately.^[1] These indexes are widely used as benchmarks for evaluating the performance of equity markets or specific sectors, with prominent examples including the S&P 500, which tracks 500 large-cap U.S. companies, the Nasdaq Composite, focusing on technology and growth stocks, and the Wilshire 5000, representing nearly all publicly traded U.S. stocks.^[1]^[2] The construction of a capitalization-weighted index involves summing the market capitalizations of all included securities and dividing by a divisor to normalize the value, allowing the index to adjust for events like stock splits or changes in the number of shares without abrupt disruptions.^[1] This methodology emerged historically as a practical solution in the early 20th century due to computational limitations, with the S&P 500 adopting full market-cap weighting in 1957, predating the formalization of the Efficient Market Hypothesis that later justified its use as a passive investment benchmark.^[3] Key advantages include lower volatility compared to equal-weighted alternatives, as larger, more established firms provide stability, and reduced trading costs for index-tracking funds since rebalancing aligns naturally with market movements.^[1]^[4] However, capitalization-weighted indexes face criticisms for potentially amplifying market bubbles by overweighting overvalued large-cap stocks and underrepresenting smaller firms, which can distort the index's representation of broader economic health.^[1] For instance, mega-cap companies like those in the technology sector can dominate the index, leading to skewed performance metrics that do not fully capture diversified market dynamics.^[4] Despite these drawbacks, they remain the dominant form of equity indexing, underpinning trillions in assets through exchange-traded funds (ETFs) and mutual funds that aim to replicate their returns passively.^[1]

Fundamentals

Definition

A capitalization-weighted index, also referred to as a market-value-weighted index, is a stock market index in which the weights of its constituent securities are proportional to their market capitalizations, allowing companies with larger total market values to exert greater influence on the index's overall performance. This weighting method ensures the index reflects the relative size of companies within the market or a designated segment, serving as a benchmark for investors to gauge broad economic trends and portfolio performance.^[1]^[5] The origins of capitalization-weighted indices trace back to the early 20th century, with Standard & Poor's introducing the S&P 90 Stock Index in 1928 as one of the first broad, daily-calculated cap-weighted indices in the United States, followed by the more widely recognized S&P 500 in 1957. These developments marked a shift toward more representative market measures, emphasizing the growing importance of such indices in tracking large-cap equities.^[6]^[7] In contrast to active portfolio management, which seeks to outperform the market through selective stock picking and tactical adjustments, capitalization-weighted indices form the foundation of passive investing by providing a low-cost, diversified representation of the market. They are extensively used in exchange-traded funds (ETFs) and index mutual funds, where the goal is to mirror market returns rather than beat them, benefiting from reduced turnover and associated trading costs.^[8]^[9]^[1] The construction of these indices presupposes the existence of publicly traded equities, where market capitalization—calculated as the product of a company's share price and the number of outstanding shares—can be readily determined to assign appropriate weights.^[1]

Market Capitalization Basis

Market capitalization, commonly known as market cap, represents the total dollar value of a company's outstanding shares of stock and is calculated by multiplying the current market price per share by the total number of shares outstanding.^[10] This metric provides a snapshot of a company's size and perceived value in the financial markets as determined by investors.^[10] In the computation of market capitalization, the shares outstanding typically encompass common stock, which grants ownership and voting rights to shareholders, while preferred stock is generally excluded owing to its hybrid nature resembling debt with fixed dividends and priority claims on assets.^[11] Treasury shares, repurchased by the issuing company and held in its own treasury, are also excluded from this count, as they do not circulate in the market and do not confer ownership rights.^[12] This exclusion ensures that market capitalization reflects only the equity available to public investors. Within capitalization-weighted indices, market capitalization forms the foundational metric for allocating influence among constituent companies, such that firms with larger market caps receive proportionally greater weight, amplifying their impact on the index's overall performance.^[13] This approach inherently prioritizes mega-cap companies, often leading to dominance by a handful of large entities whose movements can significantly sway the index.^[13] By mirroring the relative economic scale of companies as valued by the market, this basis captures broader economic significance but can result in heightened concentration risk, as observed in contemporary indices where technology giants like Apple and Microsoft account for a substantial portion of total weighting; for example, as of November 2025, Apple and Microsoft together represent approximately 13% of the S&P 500's total weighting.^[14] Such concentration underscores the method's responsiveness to market dynamics while highlighting potential vulnerabilities to sector-specific downturns.^[15]

Component Weighting

In a capitalization-weighted index, the weight assigned to each component is determined by its market capitalization relative to the total market capitalization of all components in the index. Specifically, the weight w_i for component i is calculated as w_i = \frac{\text{Market Cap}_i}{\sum \text{Market Cap}_j} \times 100\%, where Market Cap_i is the market capitalization of component i and the summation is over all components j.^[16]^[17] This approach ensures that larger companies, by market value, exert greater influence on the index's overall composition and direction. To maintain consistency, these weights are normalized such that the sum of all component weights equals 100%. Normalization occurs by dividing each component's market capitalization by the aggregate market capitalization of the index, with adjustments applied for factors like float availability if specified in the index methodology.^[16]^[17] This process is typically performed during index construction and rebalancing to reflect current market conditions accurately. For companies with multiple share classes, such as Class A and Class B shares, the total weight for the company is first determined based on its aggregate float-adjusted market capitalization. The weight is then allocated proportionally across the share classes according to their individual market capitalizations at the time of rebalancing.^[16] In global indices, American Depositary Receipts (ADRs) representing foreign companies are treated as distinct securities and weighted by their free float-adjusted market capitalization, with the most liquid ADR selected if multiple listings exist for the same underlying company.^[18] This weighting scheme results in an overweighting of high-market-capitalization stocks, which amplifies their price movements' effect on the index's performance. For instance, in periods of strong performance by mega-cap companies, the index can exhibit heightened concentration, where a small number of stocks drive the majority of returns, as observed in U.S. equity markets where the index-weighted average market cap has reached levels 10 times the unweighted average.^[19]

Construction and Methodology

Index Value Calculation

The value of a capitalization-weighted index is computed as the aggregate float-adjusted market capitalization of its constituent securities divided by a scaling divisor. The formula is given by:

\text{Index Level} = \frac{\sum_{i=1}^{n} (P_i \times Q_i)}{\text{Divisor}}

where P_i is the current price of constituent security i, Q_i is the number of float-adjusted shares outstanding for security i, and n is the number of constituents.^[20] This approach ensures that larger companies, by market capitalization, exert greater influence on the index level, as their price movements contribute proportionally more to the numerator.^[13] The divisor serves as a normalization factor that converts the total market capitalization into a convenient numerical value while preserving continuity in the index series over time. It is initially set such that the index begins at an arbitrary base value, commonly 100 or 1000, reflecting the market capitalization at a chosen starting date (for example, the S&P 500's effective base date of 1941–1942 was scaled to 10, but many modern indices use 100 for simplicity). Subsequent values indicate percentage changes from this base, allowing the index to track relative performance without absolute scale distortions.^[21] Adjustments to the divisor are made to counteract discontinuities from corporate actions or composition changes, preventing artificial jumps or drops in the index level. For instance, it is recalibrated for the addition or deletion of constituents to reflect the net change in aggregate market capitalization, and for special dividends or spin-offs that alter investable value without corresponding economic impact.^[20] Notably, ordinary stock splits require no divisor adjustment, as the proportional change in price and shares leaves market capitalization unchanged.^[13] Regular cash dividends also typically do not trigger adjustments in price-return versions of these indices, as they reflect ex-dividend price declines as genuine value transfers. In implementations focused on long-term performance tracking, some capitalization-weighted indices incorporate geometric averaging to compute compounded returns from daily or periodic levels, ensuring accurate representation of multi-period growth rates over arithmetic alternatives. This method aligns the index's historical progression with the geometric mean of returns, which better captures the effects of volatility in sustained investments.^[22]

Rebalancing Procedures

Rebalancing in capitalization-weighted indices occurs periodically to ensure the index continues to reflect current market conditions by updating constituent weights and membership. The frequency is typically quarterly or semi-annually, with changes effective after the close of trading on predetermined dates, such as the third Friday of March, June, September, and December for many U.S.-focused indices.^[23]^[24] Ad-hoc adjustments are made outside these schedules for significant corporate events, including mergers and acquisitions, where the affected constituent is often removed on the announcement date or last trading day; bankruptcies, leading to exclusion upon delisting; and initial public offerings (IPOs), which may qualify for fast-track inclusion if the float-adjusted market capitalization exceeds thresholds like $2 billion.^[23]^[25] Criteria for inclusion and exclusion emphasize maintaining a representative and investable universe. Inclusion requires meeting minimum thresholds for market capitalization (e.g., as of July 2025, the S&P 500 requires an unadjusted market capitalization of at least US$22.7 billion for large-cap eligibility), liquidity (measured by trading volume and bid-ask spreads over recent periods), and financial viability (such as positive earnings in the most recent quarter and over the trailing four quarters).^[26]^[23] Exclusion occurs when securities fail these criteria, such as falling below liquidity standards, undergoing delistings, or no longer representing required sector diversification to avoid over-concentration.^[24] Sector representation rules may also guide adjustments to ensure balanced exposure across economic sectors. Adjustment mechanics involve recalculating weights based on updated float-adjusted market capitalizations as of a reference date, typically a few days before the effective date, followed by proportional redistribution to maintain the total index value. Buffers are applied to prevent excessive turnover, iterating until compliance is achieved without full reconstitution.^[23] These buffers minimize trading volume by tolerating minor drifts between rebalances. Rebalancing can impact investors, particularly those in exchange-traded funds (ETFs) tracking the index, by introducing potential front-running—where traders anticipate changes and buy (or sell) ahead, driving temporary price distortions—and tracking error, as ETF managers adjust portfolios to match the new weights, sometimes incurring costs or delays during high-volume periods around effective dates.^[27]^[28]

Variants

Free-float Weighting

Free-float weighting refines the capitalization-weighted index methodology by basing component weights on the free-float market capitalization, which considers only the shares available for public trading rather than all outstanding shares. This approach excludes shares that are restricted, such as those held by insiders, governments, or in long-term strategic holdings, providing a more precise measure of the investable portion of a company's equity.^[29]^[30] The adjustment is calculated by determining the free-float factor, defined as the ratio of free-float shares to total shares outstanding, which typically ranges from 0 to 1. This factor is then multiplied by the company's standard market capitalization (price per share times total shares outstanding) to derive the free-float-adjusted market cap used for weighting in the index. For instance, if a company has 100 million shares outstanding but only 60 million are freely tradable, the free-float factor is 0.60, and only 60% of its full market cap contributes to the index weight.^[29]^[31] Free-float weighting gained prominence in the 1990s as index providers sought to address distortions from closely held firms that inflated weights despite limited public liquidity, becoming the industry standard by the early 2000s. A key milestone was MSCI's 2000 announcement to adjust all its equity indices for free float, with implementation in two phases: the first effective November 30, 2001, and the second May 31, 2002, which involved capping free-float estimates at increments of 5% for consistency and reducing the weight of non-free shares in global benchmarks.^[32]^[33] This variant enhances the accuracy of indices by better reflecting the investable market opportunity, minimizing overrepresentation of companies with significant insider or restricted holdings that do not actively trade. It promotes greater liquidity representation, as higher free-float stocks tend to exhibit lower volatility and broader investor access, aiding benchmark comparability for portfolio managers. Additionally, it reduces index concentration risks by preventing low-float giants from dominating performance, fostering a more balanced portrayal of market dynamics.^[29]^[34]^[35]

Full-market Weighting

Full-market capitalization weighting assigns weights to index components based on their total market capitalization, calculated as the product of the total number of shares outstanding and the current share price, including shares held by insiders, governments, promoters, or other non-public entities that are not freely tradable.^[33] This approach aims to reflect the overall economic size of companies without adjustments for share availability to investors. In contrast to free-float weighting, which excludes restricted shares to focus on investable portions, full-market weighting incorporates all outstanding shares.^[33] Historically, full-market capitalization weighting was the standard method for major equity indices, including the S&P 500, from its inception in 1957 until the mid-2000s.^[36] Index providers like S&P Dow Jones Indices transitioned to float-adjusted methodologies, with the S&P 500 fully implementing free-float weighting by September 2005 to better align with investor accessibility.^[37] This shift marked a broader industry move away from full-market approaches, which had been common in the pre-2000 era but were largely phased out as free-float methods gained dominance for their practicality in portfolio replication.^[33] In practice, full-market weighting tends to overweight companies with concentrated ownership structures, such as family-controlled firms prevalent in emerging markets, where a significant portion of shares may be held by promoters or governments, leading to inflated index representations relative to actual liquidity.^[38] This can introduce higher illiquidity risks, as the weighting includes non-tradable shares that are difficult or impossible for investors to access, potentially distorting the index's reflection of market dynamics and complicating benchmark tracking.^[33] Today, full-market capitalization weighting sees rare modern applications, primarily in certain custom or legacy indices within specific regions where total economic representation is prioritized over investability, though it remains uncommon due to its misalignment with passive investment strategies.^[29]

Comparisons

Price-weighted Indices

In contrast to capitalization-weighted indices, which base component weights on a company's total market value, price-weighted indices determine weights exclusively by the current share price of each constituent stock.^[39] This approach results in higher-priced stocks exerting disproportionately greater influence on the index's movements, regardless of the company's overall size or the volume of shares outstanding.^[40] The Dow Jones Industrial Average (DJIA) serves as the archetypal price-weighted index, having been first calculated on May 26, 1896, by Charles Dow as a measure of industrial sector performance.^[41] Its value is derived by adding the closing prices of its 30 component stocks and dividing the total by a divisor, a number adjusted periodically to account for events like stock splits, ensuring continuity despite changes in share prices. Despite its historical prominence, the price-weighting method introduces significant distortions in market representation. For example, a stock priced at $100 contributes as much to the index as ten stocks each priced at $10, even if the lower-priced stocks belong to larger firms by market capitalization, thereby overemphasizing nominal price over economic scale.^[42] Furthermore, by ignoring the number of shares outstanding, it fails to capture the true relative size of companies within the index universe.^[43] These limitations have prompted a shift in index design, with most contemporary stock market benchmarks adopting capitalization-weighting to better mirror the aggregate market value and economic weight of constituents.^[44]

Equal-weighted Indices

In an equal-weighted index, each constituent stock receives an identical allocation, typically 1/n where n is the number of components, irrespective of the company's market capitalization. This approach contrasts with capitalization-weighted indices, where larger companies dominate the portfolio due to their size-based weighting. By assigning uniform weights, equal-weighted indices aim to provide balanced exposure across all holdings, reducing the influence of any single large-cap stock.^[45] A prominent example is the Russell 1000 Equal Weight Index, which equally weights the 1,000 largest U.S. companies by market capitalization, rebalanced quarterly to maintain parity. Another is the S&P 500 Equal Weight Index, which applies the same methodology to the S&P 500 constituents, resulting in greater emphasis on mid- and small-cap stocks relative to their cap-weighted counterparts. These indices require more frequent rebalancing—often quarterly or more—to counteract natural drifts caused by price movements, leading to higher portfolio turnover compared to cap-weighted indices, which can increase transaction costs but enhance diversification.^[46]^[47]^[48] Performance-wise, equal-weighted indices have historically delivered higher returns than cap-weighted ones during bull markets favoring small- and mid-cap stocks, owing to their greater allocation to these segments, which can capture upside from undervalued or growth-oriented smaller firms. However, they tend to underperform in rallies driven by mega-cap stocks, as seen in periods like the 2023-2024 market surge led by technology giants, where cap-weighted indices benefited from concentrated gains. Over long horizons, equal-weighted strategies have shown similar total returns to cap-weighted but with elevated volatility due to the small-cap tilt.^[49]^[50]^[51] Investors use equal-weighted indices to mitigate the large-cap bias inherent in cap-weighted benchmarks, promoting broader diversification and potentially reducing concentration risk in portfolios overly exposed to a few dominant firms. This makes them suitable for strategies seeking balanced sector and size representation, particularly in environments where market leadership is uncertain.^[52]^[53]

Advantages and Criticisms

Key Advantages

Capitalization-weighted indices provide a strong representation of the overall market by assigning weights to constituent securities based on their market capitalization, thereby reflecting the relative economic significance of larger companies that attract more investor capital. This approach aligns closely with how capital is naturally allocated in financial markets, offering investors a passive exposure to the broader economy without the need for active selection. As a result, these indices serve as an effective proxy for the theoretical market portfolio in asset pricing models, capturing the aggregate performance of the investable universe in proportion to its size.^[45]^[54] A key benefit is their inherently low turnover, as changes in market prices automatically adjust the weights of individual holdings without requiring frequent rebalancing by fund managers. This natural adjustment mechanism minimizes trading costs and capital gains distributions, making capitalization-weighted indices more tax-efficient and cost-effective compared to alternatives like equal-weighted indices that demand periodic interventions to maintain balance. Empirical analyses confirm that this low-maintenance structure contributes to the superior scalability and liquidity of funds tracking such indices, enabling broad investor access at minimal expense ratios.^[55]^[45] The investability of capitalization-weighted indices has been pivotal in the growth of low-cost passive investment vehicles, exemplified by the launch of the SPDR S&P 500 ETF Trust in 1993, the first U.S.-listed exchange-traded fund tracking a cap-weighted benchmark. This innovation allowed retail and institutional investors to efficiently replicate market returns through highly liquid, low-fee products, democratizing access to diversified equity exposure. Vanguard's subsequent offerings, such as its S&P 500 index mutual fund established in 1976 and ETF variants, further underscore how cap-weighted indices underpin the multi-trillion-dollar passive investing industry.^[56] Empirical evidence from asset pricing research supports the efficiency of capitalization-weighted indices as benchmarks, particularly in frameworks like the Fama-French three-factor model, which uses the excess return of a broad cap-weighted market portfolio as the primary market factor to explain stock returns. This model, developed in 1993, demonstrates that cap-weighted indices effectively capture systematic risk premiums, serving as a foundational reference for evaluating portfolio performance and risk-adjusted returns across diverse asset classes. Studies applying the model consistently validate these indices as reliable proxies for market-wide efficiency, influencing modern portfolio construction and performance attribution practices.^[57]^[58]

Main Criticisms

One major criticism of capitalization-weighted indices is their inherent concentration risk, which leads to overreliance on a few top holdings and exposes investors to heightened volatility from those positions. In the S&P 500, for example, the top 10 stocks have comprised roughly 40% of the index's market capitalization during the 2020s tech boom, far exceeding historical norms and amplifying sector-specific downturns.^[59] This structure inherently favors mega-cap firms, increasing portfolio vulnerability to company-specific events or regulatory changes affecting dominant players.^[60] Another key drawback is the momentum bias embedded in these indices, which rewards stocks that have already experienced significant price appreciation by increasing their weights, thereby potentially fueling market bubbles. During the dot-com era in the late 1990s, this bias caused technology stocks to gain excessive representation in cap-weighted indices, exacerbating price distortions and contributing to the subsequent sharp collapse when valuations corrected.^[61] Such dynamics create a self-reinforcing cycle that prioritizes past winners over fundamental value, distorting market signals and heightening systemic risks.^[60] Capitalization-weighted indices also neglect smaller companies, underrepresenting innovative small-cap firms and skewing exposure toward established incumbents. By design, these indices allocate minimal weight to small caps, which constitute about 14% of the global investable equity universe, effectively ignoring a substantial portion of the market that has historically offered a risk premium of around 4.5% annually over large- and mid-caps in certain periods, although this premium has been largely absent or negative from approximately 2015 to 2024, with small caps underperforming large caps, and early signs of resurgence in 2025 based on earnings growth forecasts.^[62]^[63]^[64] This bias limits diversification and misses opportunities from smaller entities that may drive future growth. Recent post-2020 studies have highlighted ESG misalignment in capitalization-weighted indices arising from mega-cap dominance, as ESG scoring systems exhibit a pronounced large-cap bias that favors better-resourced firms while penalizing smaller ones with limited disclosure capabilities. For instance, analysis of U.S. markets from 2015 to 2020 shows that ESG scores correlate more strongly with firm size in large-cap indices, leading to overemphasis on mega-caps and potential underrepresentation of sustainable practices among small caps, which can distort overall index alignment with environmental, social, and governance goals.^[65] This issue persists due to inconsistent rating methodologies across providers, further complicating accurate ESG representation in cap-weighted portfolios.^[66]

Notable Examples

Global Indices

The MSCI World Index is a prominent capitalization-weighted benchmark that tracks the performance of large- and mid-cap stocks across 23 developed markets, including approximately 1,321 constituents representing about 85% of each country's free float-adjusted market capitalization.^[67] This index, calculated since 1969 with formal launch in 1986 and back-tested historical data, employs free float-adjusted market capitalization weighting to reflect the investable opportunity set in these markets.^[68] The FTSE All-World Index serves as another key global benchmark, encompassing large- and mid-cap stocks from both developed and emerging markets across 49 countries, with 4,253 constituents as of October 31, 2025, and a total market capitalization exceeding $93 trillion at that date.^[69] Like the MSCI World, it uses market-capitalization weighting, adjusted for free float, to provide broad exposure to over 90% of the global investable equity universe in the FTSE Global Equity Index Series.^[69] Post-2010, the MSCI World Index has experienced notable growth driven by the technology sector, which expanded its weight from around 12% in 2010 to 26.9% by July 2025, contributing to the index's annualized return of approximately 12-13% over the period through outperformance in information technology stocks averaging 18.5% annually in the decade to 2021.^[70]^[67] These indices are widely adopted as benchmarks for global exchange-traded funds (ETFs), with assets in ETFs tracking MSCI's equity indexes surpassing $2 trillion as of July 2025 and total assets benchmarked against MSCI indexes exceeding $17 trillion across various products.^[71]

Regional and Sector Indices

Regional capitalization-weighted indices focus on specific geographic areas, providing benchmarks for local market performance while emphasizing larger companies through market capitalization weighting. The S&P 500, a prominent U.S. large-cap index, comprises 500 leading companies and represents approximately 80% of the total U.S. equity market capitalization. As of September 2025, its aggregate market capitalization exceeded $57 trillion, underscoring its dominance in tracking the American economy. This index plays a central role in retirement planning, serving as a core investment option in many 401(k) plans where participants allocate significant portions of their savings to S&P 500 index funds for broad exposure to U.S. equities. In Asia, the TOPIX index offers a capitalization-weighted measure of the Japanese market, including all domestic companies listed in the First Section of the Tokyo Stock Exchange and covering roughly 95% of Japan's equity market value. Calculated using free-float market capitalization, TOPIX reflects the performance of a diverse range of sectors, with weights adjusted to prioritize larger, more liquid firms. Launched in 1969 with a base value of 100, it has evolved to incorporate phased weighting reductions for smaller stocks, enhancing its representativeness of the broader market. European regional indices, such as the EURO STOXX 50, exemplify adaptations to continental economic integration. Introduced on February 26, 1998, shortly before the euro's launch, this free-float market capitalization-weighted index tracks the 50 largest blue-chip companies across the Eurozone, spanning 8 countries and various sectors. Its creation addressed the need for a unified benchmark amid the shift to a single currency, capturing about 60% of the free-float market cap in the STOXX Europe 600. The index imposes a 10% cap on individual constituent weights to mitigate concentration risks, adapting to regional economic shifts like post-eurozone expansions. Sector-specific capitalization-weighted indices apply the same weighting principle within industry groups, allowing investors to target particular economic segments. The S&P 500 Information Technology Index, for instance, includes technology firms from the broader S&P 500, weighted by their market capitalization to highlight leaders like semiconductors and software providers. This index, which constitutes over 30% of the S&P 500's total weight as of late 2025, has driven significant outperformance due to innovation in areas such as artificial intelligence and cloud computing. Similarly, the Energy Select Sector Index, tracked by the Energy Select Sector SPDR ETF, focuses on U.S. energy companies including oil, gas, and equipment providers, with weights based on market cap subject to 25% individual caps to ensure diversification. These sector indices enable precise exposure to industry trends, such as energy transitions or technological advancements, while maintaining the market-driven emphasis of capitalization weighting.

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What Is a Price-Weighted Index? ... A price-weighted index averages the share prices of included companies, giving greater influence to higher-priced stocks.
[38]
Price-Weighted Index - Overview, How to Calculate Weights
A price-weighted index is a type of stock market index in which each component of the index is weighted according to its current share price.
[39]
Understanding Dow Jones: Calculation and Investment Impact
It's a price-weighted index. Its calculation method is the sum of stock prices divided by a fixed divisor.What Is the Dow? · How It's Calculated · Calculation on Day 5 · Day 6 Calculation
[40]
Price Weighted Stock Index Calculation and Biases - Macroption
A price weighted stock index is in fact the simple arithmetic average of prices of all stocks included in the index.<|control11|><|separator|>
[41]
Fundamentals of Price Weighted Index (2025): Definition, Example
The price-weighted index determines weights by dividing stock prices by the complete total of all index stocks' prices. The calculation method establishes that ...
[42]
Why Cap Weighting? - S&P Global
Nov 11, 2020 · This is mathematically equivalent to multiplying each individual stock's return by its beginning weight. In other words, the percentage return ...Missing: formula | Show results with:formula
[43]
What to consider when choosing between index-weighting ...
The market-cap-weighted approach provides “passive” exposure to the targeted market by weighting all of its assets in accordance with their capitalisation – ...Missing: capitalization- | Show results with:capitalization-
[44]
https://www.spglobal.com/en/research-insights/market-insights/why-cap-weighting
[45]
[PDF] S&P 500: Market Capitalization vs Equal Weighted - Raymond James
Last year saw the record-breaking outperformance of the traditional, market capitalization weighted S&P 500 Index over the equal weight version—the S&P 500 ...
[46]
Understanding Equal-Weight Investing: Benefits and Key ...
Equal-weight index funds tend to have higher portfolio turnover than market-cap weighted index funds: The fund manager has to periodically rebalance investment ...
[47]
Outperforming Cap- (Value-) Weighted and Equal-Weighted Portfolios
Jan 19, 2024 · Equal-weighted portfolios have produced higher returns than cap-weighted ones because they have more exposure (they “tilt”) to factors such as size and value.
[48]
Market cap- vs. equal-weighted indexes in the Magnificent Seven era
Aug 2, 2024 · By the most common measure, the S&P 500 Index posted a 15.3% total return in the first six months of 2024. By another, it delivered just ...
[49]
What Are Equal-Weight Index Funds? | The Motley Fool
Jun 11, 2025 · Equal-weight funds offer similar long-term returns as cap-weighted but higher volatility and expense ratios. Equal-weight strategy avoids over- ...Key Points · Implications Of Equal... · Comparative Performance Of...Missing: definition | Show results with:definition
[50]
Best Equal-Weight Index Funds | Bankrate
Aug 15, 2025 · Equal-weight index funds can help reduce the concentration risk that comes with market-cap weighted index funds.Top Equal-Weight Index Funds · Invesco S&p 500 Equal Weight... · Goldman Sachs Equal Weight U...Missing: definition | Show results with:definition
[51]
Equal-Weighted vs. Market-Cap Weighted S&P 500 Ind... | FMP
Sep 10, 2024 · The equal-weighted index offers unique advantages, including enhanced diversification, reduced impact of large-cap dominance, and potential for higher returns.
[52]
Benchmark Selection - CFA, FRM, and Actuarial Exams Study Notes
Jan 11, 2025 · For instance, the FT Wilshire 5000 Index, a market-cap-weighted index, employs an exhaustive strategy by including approximately 5,000 publicly ...
[53]
The Pros and Cons of Market-Cap-Weighted Indexing | Morningstar
Apr 26, 2022 · Market-cap-weighted indexes tend to have low turnover. All else equal, less turnover means less taxes in the form of taxable capital gains ...
[54]
How SPY Reinvented Investing: The Story of the First US ETF
The SPDR® S&P 500® ETF (SPY), a basket of securities tracking the performance of the S&P 500® Index, made its debut in 1993 as the first US-listed ETF.
[55]
[PDF] AN ALTERNATIVE TO CAP-WEIGHTED INDICES - Not for Distribution
To account for other systematic factors which might explain returns of the efficient index, we used the Fama–. French 3-Factor model. In addition to the ...
[56]
[PDF] A practical implementation of the Fama French Five-Factor model ...
The Fama-French three-factor model had a monumental impact on empirical asset pricing research and practice. It became a standard benchmark for evaluating other ...
[57]
The Stock Market Is Ultraconcentrated, and It Could Get Worse ...
Oct 17, 2025 · Are the risks associated with high concentration greater for passive index investors? Why? Wall Street has been warning about concentration risk ...
[58]
[PDF] Overcoming Limitations of Market Capitalization-Weighted Indices
The potential risks of market cap-weighted indices are often overlooked by investors. Traditional indices may have growth, momentum, and mega-cap biases, along ...
[59]
[PDF] WEIGHTED INDICES IN STOCK MARKET VALUATION - IJRAR.org
It is calculated by multiplying the company's current share price by the total number of shares in circulation. Market capitalization provides a snapshot of a.Missing: formula | Show results with:formula
[60]
None
### Summary: How Cap-Weighted Indices Underrepresent Small Caps
[61]
[PDF] Company-Size-Bias-in-ESG-Scores-Impacts-Small-Cap ... - Bailard
Using environmental, social, and governance (ESG) scores as a proxy for CSP, our research supports past studies showing a large cap bias in measures of CSP. ...Missing: 2021-2025 | Show results with:2021-2025
[62]
[PDF] ESG Investing: Practices, Progress and Challenges | OECD
Research suggests that there is an ESG scoring bias in favour of large-cap companies, and against SMEs. ... The first three industries by Market Cap weight in the ...Missing: post- dominance
[63]
[PDF] MSCI World Index (USD)
The MSCI World Index captures large and mid-cap representation across 23 Developed Markets, with 1,320 constituents, covering 85% of each country's free float- ...
[64]
MSCI World Index
The MSCI World Index captures large and mid cap representation across Developed Markets countries. The index covers approximately 85% of the free float- ...
[65]
None
### Summary of FTSE All-World Index Description
[66]
MSCI World - Wikipedia
The MSCI World is a widely followed global stock market index that tracks the performance of around 1,300 large and mid-cap companies across 23 developed ...
[67]
MSCI World - Composition by Sectors for the last 10 Years
Dec 22, 2021 · Nevertheless, over the last ten years, the MSCI World Information Technology has achieved an annual return of 18.5%, while the MSCI World has ...
[68]
Global ETF assets tracking MSCI equity indexes exceed $2 trillion
NEW YORK – July 16, 2025 – The assets in indexed equity exchange-traded funds (ETFs) linked to MSCI's global equity indexes surpassed $2 trillion, a growth ...