Index weighting

What it means

The rule that decides each member’s influence on an index: by share price, equally, by market capitalisation (optionally counting only freely traded shares), or by fundamentals such as sales or earnings.

The exam angle

Equal weighting needs rebalancing as prices move; market-cap weighting rebalances itself. A stock split moves a price-weighted index unless the divisor is changed.

Where it appears in the syllabus

• Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
• EquitiesCFA Level I · exam weight 11–14% · Market organisation, indexes, industry analysis, dividend models.

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