Reading 33: Equity Portfolio Management- LOS d(part2)～ Q1 stocks, towards, following

wzaina

 

LOS d, (Part 2): Evaluate the biases of each weighting scheme.

Q1. Which of the following indices would be biased towards small cap stocks?

A)   A price-weighted index.

B)   A value-weighted index.

C)   An equal-weighted index.

 

wzaina

 

 

LOS d, (Part 2): Evaluate the biases of each weighting scheme. fficeffice" />

Q1. Which of the following indices would be biased towards small cap stocks?

A)   A price-weighted index.

B)   A value-weighted index.

C)   An equal-weighted index.

Correct answer is C)

The equal-weighted index is biased towards small-cap companies because they will have the same weight as large-cap firms even though they have less liquidity. Many equal-weighted indices also have more small companies in them than large firms, creating a further bias towards small companies. Value-weighted indices are biased towards large cap stocks and price-weighted indices are biased towards high priced stocks.

 

 

pundit

a

sweetgao

k

miguelliu

 a

zhouyp1982

 r

sszzyyll

 good

mashanghao

n

rc2008

A

dandinghe4748

ok