What is it about?

Emerging market equity indexes can be highly volatile. Existing indexes globally are either market capitalization or price‐weighted indexes, and with subsequent movements in volatility these indexes fluctuate significantly as they track stock prices at that point in time, reducing the stability of such an important benchmark.

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Why is it important?

This method helps reduce index volatility and increase return compared with the underlying market capitalization or price‐weighted indexes.

Perspectives

This index weights more efficient stocks higher in order to reweight the stocks in the underlying index in such a way that it can outperform that index over time.

Assoc. Prof. Omar Al Farooque
University of New England

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This page is a summary of: How to Outperform Emerging Market Indexes Using Passive Indexation, Strategic Change, September 2016, Wiley, DOI: 10.1002/jsc.2076.
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