What is it about?
We first develop a theory-based metric to judge the popularity of indexing in a stock market. We then use our metric to document that although indexing is less popular in emerging markets than in developed markets, its popularity is increasing almost everywhere. Finally, as we have better data for the United States, we explore why indexing is becoming more popular in the United States (harder to get inside information, easier to trade ETFs)
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Why is it important?
The two trading philosophies -- passive trading in baskets of securities or active stock picking -- are diametrically opposite. Which is winning in the real world? This is the first paper that formally documents, using hard data and a theoretically-guided metric, that the former philosophy is winning amongst traders. The paper was featured in the New York Times on January 1, 2016.
Perspectives
I got the idea of the metric while explaining a concept to my undergraduate students. I remember vividly how excited I was that day.
Professor Utpal Bhattacharya
Hong Kong University of Science and Technology
Read the Original
This page is a summary of: The Global Rise of the Value-Weighted Portfolio, Journal of Financial and Quantitative Analysis, February 2011, Cambridge University Press,
DOI: 10.1017/s0022109011000044.
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