Cap-weighted indexing's hidden 'active' drag
The guest argued that cap-weighted indexing has a costly 'active side' - the small portion of turnover from index additions and deletions - which systematically buys high and sells low due to front-running.
Keep reading this one
You've read the thesis and who argued it. A free account opens the argument, what validates it, the risks the show raised, and the moment in the episode where it was said — 3 ideas in full a day, no card.
The Callback
Don't look for the needle, buy the haystack
57 weeks between these two statements.
In response to research suggesting index funds are 'bad market timers', the guest argued the issue is with index construction methodology, not fund implementation, and that the observed negative abnormal returns on new issues align with the idea that companies issue shares when overvalued.
The guest argued that cap-weighted indexing has a costly 'active side' - the small portion of turnover from index additions and deletions - which systematically buys high and sells low due to front-running.