The Cutting Edge

January 01, 2007

Warning: This column discusses issues of etymology and lexicography. Consequently, it is not suitable reading for young children.

The title and topic of this column was inspired by a Clifford Asness (2006) article that appeared in the October issue of Institutional Investor. The same question was echoed in the headline of an even more recent article by Ian Salisbury (2006) in The Wall Street Journal. Both articles examine the recent development of "fundamental indexes" and other nonmarket-cap-weighted approaches to indexing.

Asness raises some interesting questions on the "value" of fundamental indexing, as advocated by Research Affiliates and WisdomTree, along with their respective gurus, Rob Arnott and Jeremy Siegel. Asness's paper deserves the attention of any serious student of indexes and indexing.

We take issue, however, with Asness' case for restricting the definition of "Index." The notion that "Index" should be narrowly defined encouraged us to retrieve and update some research we did a few years ago for another purpose. As the following tree diagram shows, we examined the origins and the breadth of English definitions for "Index" dating to its emergence in antiquity (probably between 1350 and 1400) from Latin antecedents. The tree provides a rough timeline of citations from Samuel Johnson's Dictionary of the English Language, The Oxford English Dictionary and a variety of other English and American dictionaries of more recent vintage. (Lest there be any confusion, we do not offer this diagram as a wisdom tree.)

Anyone who proposes to restrict the definition of "Index" must deal with the fact that the word has been part of our language for more than six centuries, and has been used for many purposes over that period. Some of the boxes in the tree have a heavy border, indicating that the definition inside is an antecedent of how the financial community uses the word "Indexes" today. Common equity market indexes probably originated with the S&P 500 in approximately 1957. The S&P 500 was described as an "Index" in an attempt to distinguish it from the Dow Jones Industrial "Average."

We cite below a number of financial "Index" definitions from dictionaries and glossaries of recent vintage. Unlike the original print editions of Johnson's Dictionary and The Oxford English Dictionary, many online dictionaries are updated without the document trail that etymologists and lexicographers have used to track changes in usage over time. In some cases, the definition of "Index" in these dictionaries has changed since our original research.

Surprisingly, the controversial Wikipedia Web site does not provide provocative "Index" definitions. We hope no one takes that statement as indicating a fault in Wikipedia's efforts. We have quite enough "Index" definitions. We are not asking for more.


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