equity: Herfindahl Index equity, number, remember

dandman

I remember the formula is sum(weght(i)^2), why some time we could take the 1/ HHI to get the total number of equal size firm? Thanks.

ayodayo

Because HHI, your denominator is essentially the proportionate share that one firm has with the market. If you assume that all firms are equal size then a firm with 2% mkt share would result in 1/.02= 50 comparable size firms.

wilslm

but HHI is from that weight ^2, not simply the weight. that is why I don't understand why 1/HHI could get total number of the firm......

Chuckrox8 Wrote:
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> Because HHI, your denominator is essentially the
> proportionate share that one firm has with the
> market. If you assume that all firms are equal
> size then a firm with 2% mkt share would result in
> 1/.02= 50 comparable size firms.