Reading 31: Equity Portfolio Management－LOS d share, equity, 2008

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CFA Institute Area 8-11, 13: Asset Valuation
Session 10: Equity Portfolio Management
Reading 31: Equity Portfolio Management
LOS d, (Part 1): Distinguish among the predominant weighting schemes used in the construction of major equity share indices.

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Which of the following statements regarding a free float-adjusted market capitalization index is least accurate?

A) The float adjusted index is considered the best index type by many investors, because it is representative and can be mimicked with minimal tracking risk.

B) The major value-weighted indices in the world have not been adjusted for free float.

C) A free float-adjusted market capitalization index assumes the investor has bought all the publicly available shares of each company in the index.

D) A free float-adjusted market capitalization index is adjusted for the amount of stock that is actually available to the public.

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Answer and Explanation

The major value-weighted indices in the world have been adjusted for free float.

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

A) A value-weighted index.

B) A free float-adjusted market capitalization index.

C) An equal-weighted index.

D) A price-weighted index.

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Answer and Explanation

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.
  

[此贴子已经被作者于2008-9-18 17:52:24编辑过]