Question

Why is there a difference between the equal and value weighted institutional holding of U.S. equities?

Why is there a difference between the equal and value weighted institutional holding of U.S. equities?

Homework Answers

Answer #1

Equal institutional holding of US equities is the equal allocation of capital on the equities in stock market irrespective of the market capitalisation of the shares, or the number of outstanding shares or price per share. This might not minimises unsystematic risk as the ratios may not be equal to proportion of stock market index.
Value Weighted holding of US equities is the holding the equities in the proportion of the actual value of the outstanding shares of equities as per the stock market index. The weights taken here are market weights of stock. This minimises unsystematic risk.

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