What’s in Your Benchmark? A Factor Analysis of Major Market Indexes

The authors examine the factor exposures of several popular market-capitalization indexes and how they vary over time. The authors find that most market-capitalization-weight indexes are effectively exposed to only two or three factors, with value and momentum being increasingly dominant. They find that the proportion of index movements explained by factors has materially increased in recent years, which is consistent with a more top-down, macro-driven environment or the increasing importance of economy-wide risks for financial markets.