@article {Lamm18, author = {R. McFall Lamm, Jr.}, title = {Improving Emerging Market Equity Performance through Equal-Weight Country Indexing}, volume = {1}, number = {4}, pages = {18--30}, year = {2011}, doi = {10.3905/jii.2011.1.4.018}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Capitalization-weight orthodoxy now dominates in the equity indexing world despite the fact that research indicates it is inefficient and underperforms valuation-indifferent approaches. However, a more important issue for multinational indices{\textemdash}especially in the case of emerging markets{\textemdash}is the method used to determine country weights. Pure cap-weighting allows country exposures to indiscriminately fall out of the bottom-up aggregation process, which significantly over-concentrates risk in only a few countries. This study demonstrates that employing an equal country weighting scheme for emerging markets would have hugely outperformed cap-weighting for the past quarter century. Equal weighting reduces risk by increasing diversification across divergent macro policy regimes and is mean{\textendash}variance optimal in a special case. In contrast, cap-weighting forces investors into riskier exposure to overvalued markets and is mean{\textendash}variance inefficient. Unfortunately, there are no equal-weighted broad emerging market indices or commercial products available. Using emerging market country ETFs offers a partial solution, although the full range of emerging markets is not covered and liquidity is sometimes limited.TOPICS: Emerging, exchange-traded funds and applications, mutual fund performance}, issn = {2154-7238}, URL = {https://jii.pm-research.com/content/1/4/18}, eprint = {https://jii.pm-research.com/content/1/4/18.full.pdf}, journal = {The Journal of Beta Investment Strategies} }