ABSTRACT
Capitalization-weighted indexation (CW) is the most common way to gain access to broad equity market performance. It is often backed by results of modern portfolio theory. In the CAPM framework, the optimal investment strategy is to hold the market portfolio, which corresponds to the capitalizationweighted portfolio under certain assumptions. Because of this presumed efficiency, capitalization-weighted indices play a central role in the investment industry. First, they are a convenient investment solution. The growth of index funds and more recently exchange traded funds (ETF) illustrates perfectly the big interest of investors and passive management represents now a large part of the asset management industry. Second, they represent a benchmark for active management. Generating excess return with respect to capitalizationweighted indices is therefore a challenge for all active managers of equity portfolios.
