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The Investment Assets Handbook: A definitive practical guide to asset classes by Yoram Lustig

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Chapter 14: Alternative betas

Alternative or smart betas are based on methodologies of reweighting and reconstruction of existing asset indices to produce more efficient investments (not to be confused with alternative betas that are the systematic risks accessed through alternative investments).

Since the first market capitalisation weighted (cap-weighted) index was introduced by Standard & Poor’s in 1923, they have become the dominant indexing methodology. The vast majority of index trackers, such as exchange traded funds (ETFs) and passive funds, and derivatives on indices, such as index futures, are based on cap-weighted indices. Cap-weighted indices are the most representative gauge of the market (i.e. they represent the value that the ...

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