The Index Is Dead. Long Live The Index.

June 24, 2013

Other improvements are easy to assess. When considering risk, CRSP's cumulative market-cap breakpoints give a more meaningful stock market "size" exposure. Similarly, CRSP's style indexes use many factors and a carefully validated weighting scheme to better approximate "value" and "growth" as styles.

As for market impact and trading costs, lower turnover is a big step in the right direction. CRSP conducted a study looking at the indexes we replaced, and calculated the turnover characteristics of the funds as if they had been historically managed against the CRSP Indexes. CRSP's style indexes show impressive reductions in turnover. Keep in mind that the turnover reductions were achieved even with CRSP's more rapid quarterly reconstitution, which provides a better measure of the current investment opportunity set.

We have attempted to provide new insight into the motivation and practical elements that underlie our index construction. While there has been significant convergence in methodologies among the major index providers, that is solely an end—one that provides little insight into means. We believe that CRSP's academic heritage and our desire to both study and represent the "real" world are distinguishing characteristics of our means.

*A response to "Index Rex," by Gus Sauter, published in the 2Q 2002 issue of the Journal of Indexes



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