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LOS d, (Part 2): Evaluate the biases of each weighting scheme. ffice ffice" />
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.
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发表于 2009-3-6 17:28
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