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Index rebalancing and the technology bubble

Author

Listed:
  • E Dimson

    (London Business School)

  • P Marsh

    (Esmée Fairbairn Professor of Finance, and Director of the Masters in Finance and Corporate Finance Evening Programmes at London Business School)

Abstract

To maintain coverage of their target universe, stock market indices must periodically be rebalanced. This can give rise to turnover that is large, even by the standards of actively managed portfolios. High turnover is not only costly; it can also have a marked impact on reported returns. We demonstrate the problems posed by index rebalancing through a case study of how the year-2000 technology bubble interacted with index rebalancing rules to enhance the performance of a popular index. We draw on this case to discuss the design of performance benchmarks.

Suggested Citation

  • E Dimson & P Marsh, 2001. "Index rebalancing and the technology bubble," Journal of Asset Management, Palgrave Macmillan, vol. 1(4), pages 311-320, April.
    • Handle: RePEc:pal:assmgt:v:1:y:2001:i:4:d:10.1057_palgrave.jam.2240024
    DOI: 10.1057/palgrave.jam.2240024
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    Cited by:

    1. Paul Docherty & Howard Chan & Steve Easton, 2013. "Australian evidence on the implementation of the size and value premia," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 53(2), pages 367-391, June.

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