By: Tom Goodwin, Senior Research Director
With the approach of the holiday season shopping frenzy, we have a perfect opportunity to observe basic human herding behavior as retailers quickly sell out of their hottest items. The fact is, people tend to be drawn to products that are highly promoted and desired by others. The same holds true for stocks as the hype—positive or negative—surrounding a company can drive market prices up or down. In a market-cap weighted index, these price changes are directly reflected in the stock’s weight within the index. But if we construct an index that breaks this link between market price and index weight, what market conditions would affect our new index?