不太明白题目想问的意思

问题如下：

The index weighting method that underrepresents securities that constitute the largest fraction of the target market value is most likely the:

选项：

A.price-weighting method. B.equal-weighting method. C.market-capitalization-weighting method.

解释：

Solution

1. Incorrect because the value of the price-weighted index is determined by dividing the sum of the security values by the divisor, which is typically set at inception to equal the initial number of securities in the index. The constituent that has the highest price, also has the highest weighting and thus will have the greatest impact on the return of the index. All else being equal, this weighting method would not underrepresent securities that constitute the largest fraction of the target market. The main disadvantage of price weighting is that it results in arbitrary weights for each security. In particular, a stock split in any one security causes arbitrary changes in the weights of all the constituents' securities. A stock split on a security that represents the largest fraction of the target market (pre-split) could cause it to be underrepresented (post-split), but such occurrences are random. Moreover, the weighting method does not determine which constituents, large or small, will split their stock price.

2. Correct because a disadvantage of an equal-weighted index is that securities that constitute the largest fraction of the target market value are underrepresented, and securities that constitute a small fraction of the target market value are overrepresented.

3. Incorrect because the primary advantage of market-capitalization-weighting is that constituent securities are held in proportion to their value in the target market.

Security Market Indexes

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