Welcome to the 2018 AFS Annual Meeting, being held this year, in conjunction with FPA in Chicago!
Tuesday, October 2 • 8:00am - 8:50am
A1a - Do Equal-Weighted Index Funds Outperform Market Cap-Weighted Index Funds? [CFP Investments]

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Investors have traditionally been advised to invest in market capitalization weighted index funds such as the S&P 500 index funds. However, recent literature suggests that investors may be better off choosing equal-weighted indexes for their portfolio investments. We investigate this issue empirically and find that, over the last twenty-seven years, the equal-weighted S&P 500 index has consistently outperformed the capitalization-weighted S&P 500 index over rolling 1-year, 3-year and 5-year periods, both in terms of cumulative returns and Sharpe ratios. We also find that an ETF that tracks the equal-weighted S&P 500 index has consistently yielded better risk-adjusted returns than the most popular ETF that tracks the cap-weighted S&P 500. These differences are driven by the firm size and book-to-market factors. However, when we study the smaller S&P MidCap 400 and the S&P SmallCap 600 indexes, we find that the equal-weighted indexes perform no better than the traditional cap-weighted indexes. Our results should be of interest to investors, financial advisors and practitioners.

Author(s): S. Gowri Shankar, James M. Miller

avatar for Gowri Shankar

Gowri Shankar

Faculty, University of Washington Bothell

Tuesday October 2, 2018 8:00am - 8:50am CDT
Michigan 1A

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