Chapter 3: Security Market Indexes

In this section

• Index Construction and Weighting Methods
  Explore how security market indexes are built, the steps in constituent selection, the differences among weighting methods, and their implications for portfolio management.
• Types of Equity Indexes
  Explore the diverse landscape of equity indexes, from broad market benchmarks to specialized thematic strategies, and learn how each type can inform portfolio construction and performance analysis.
• Rebalancing, Reconstitution, and Index Changes
  Explore the essential processes that maintain equity indexes, avoid drift, and reflect market realities in real time.
• Applications of Indexes in Passive vs. Active Investing
  Discover how security market indexes serve as the backbone for passive strategies and critical benchmarks for active managers, exploring cost efficiency, performance measurement, and advanced risk management considerations.
• Factor-Based Equity Indexes
  Explore factor investing strategies, single- vs. multi-factor indexes, and how systematic factor exposures can potentially enhance returns and manage risk in equity portfolios.
• Impact of Cross-Listings on Global Equity Indexes
  Explore how cross-listing affects global equity indexes, including currency conversion, double-counting risks, and broader investor considerations.
• Use of Thematic and Sector-Focused Indexes
  Explore how thematic and sector-focused indexes can enhance portfolio strategies, manage industry-specific risks, and capture emerging investment opportunities.
• Style and Factor Investing Approaches
  Explore growth versus value investing strategies, factor overlaps, and the construction of style indexes. Delve into real-world applications, potential pitfalls, and how these approaches integrate with broader portfolio management.
• Advanced Weighting Schemes (Equal Risk Contribution, etc.)
  Discover advanced index weighting methods such as Equal Risk Contribution and Minimum Variance, their rationale, and implementation challenges in equity portfolio construction.
• Liquidity Traps in Index Investing
  Explore how low liquidity in index constituents can lead to price distortions, increased transaction costs, and heightened risks for index investors.