Diversifying an Index

Authors: Johannes Ruf

arXiv: 2311.10713v1 - DOI (q-fin.PM)

Abstract: In July 2023, Nasdaq announced a `Special Rebalance' of the Nasdaq-100 index to reduce the index weights of its large constituents. A rebalance as suggested currently by Nasdaq index methodology may have several undesirable effects. These effects can be avoided by a different, but simple rebalancing strategy. Such rebalancing is easily computable and guarantees (a) that the maximum overall index weight does not increase through the rebalancing and (b) that the order of index weights is preserved.

Submitted to arXiv on 16 Jul. 2023

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