A Decomposition of the Market Composition

2020 has been an interesting year for investors so far and it is showing no signs of letting up any time soon. The most popular and widely followed stock market indices are typically market-capitalization weighted (read more about it here https://www.investopedia.com/terms/c/capitalizationweightedindex.asp) and at times can be rather misleading when used as a proxy for performance of the stocks within the index. If you are unfamiliar with the drawbacks and advantages of the various index weighting methodologies, the EDHEC Risk Institute has a very thorough whitepaper on the subject that is worth a read: https://risk.edhec.edu/sites/risk/files/improved-beta-comparison-index-weighting-schemes.pdf.

The purpose of this blog post is to look under the hood of the stock market indices by examining the constituents (the individual companies that make up the index) and the performance throughout the year.

You can find the notebook and data used here: https://github.com/aarongilman/research