Abstract
This study sheds light on the entanglement of market volatility, intra-index correlations, portfolio concentration and portfolio holdings overlap, with respect to three types of index weighting schemes. First of all, we show that a high degree of absolute holdings overlap is not a sufficient measure of the level of coincidence with a value-weighted benchmark index. Secondly, we take a closer look at portfolio concentration and market contagion. We monitor a pattern where index weighting schemes experience highly correlated returns after 2008, alongside a drop in relative portfolio holdings overlap during periods of increased market volatility. Finally, we are able to show that portfolio concentration is caused by a `flight to familiarity', where we define an asset to be familiar in the case of entailing low predictive estimation errors.
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