RT Journal Article
SR Electronic
T1 Cap-Weighted Indexing Revisited
JF The Journal of Wealth Management
FD Institutional Investor Journals
SP 46
OP 49
DO 10.3905/jwm.2001.320419
VO 4
IS 3
A1 David M. Stein
YR 2001
UL https://pm-research.com/content/4/3/46.abstract
AB The author first observes that arguments that indexing is a momentum strategy, a large cap strategy, or even a style of investing that is sometimes in fashion and sometimes out of fashion are misleading. He then counters these arguments with a careful, non-standard definition of cap-weighted indexing, which distinguishes between the amount of the company being purchased and the amount of money that this purchase costs. He concludes that the argument that cap-weighted indexing is a momentum play is false, as it fails to distinguish between the amount of the company being purchased and the cost of this purchase. It also fails to distinguish between a bet that a portfolio is making relative to the market, and one that is made by the market as a whole. Thus, by defining indexing as the purchase of the same fractional amount of each company, it becomes apparent that indexing is not a momentum play, a size play, nor a style play.