RECHERCHE ET PUBLICATIONS

Scientific Diversification in Practice: Reactions to EDHEC-Risk Efficient Indices

Capitalisation weighting in equity index construction has come in for harsh criticism of late. Our research into efficient indexation returns to the roots of modern portfolio theory to provide an alternative to current methods of constructing equity indices.

Auteur(s) :

Felix Goltz

Head of applied research at EDHEC-Risk Institute and director of research & development at EDHEC-Risk Indices & Benchmarks.

Lin Tang

Research analyst at EDHEC-Risk Institute.

In 2010, as it happens, EDHEC-Risk Institute launched a set of efficient equity indices as an alternative to cap-weighted indices. The aim of these indices is to be more risk/reward efficient than cap-weighted indices (see Amenc et al. 2010 for a description of the method). The constituent weights in the index are obtained from a formal Sharpe ratio maximisation, thus taking into account expected returns, volatilities, and the correlation of constituent stocks. The index series is based on all constituent securities in the FTSE All-World Index Series. The recent launch of a worldwide index series using the efficient weighting includes indices on the main countries (US, Japan, UK) and regions (Europe, Asia Pacific, etc.); it also includes worldwide indices (All World, Emerging Markets, etc). To assess industry views of this initiative, we surveyed asset managers and investors. This document begins with an overview of efficient indexation and then outlines the reactions received from survey respondents.
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Scientific Diversification in Practice: Reactions to EDHEC-Risk Efficient Indice...
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Type : Publication EDHEC
Date : le 31/01/2011
Complément d'informations For more information, please contact Joanne Finlay, EDHEC Research and Development Department [ joanne.finlay@edhec.edu ] The contents of this paper do not necessarily reflect the opinions of EDHEC Business School.
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