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Taylor’s Golden Rule of Stock Market Size Indices

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Contributed by Dr. Bryan Taylor, Chief Economist, Global Financial Data

Global Financial Data has collected extensive data on stocks from the United States and the United Kingdom covering over 400 years.  With this, GFD has generated indices that cover the history of the stock market from the incorporation of the Dutch East India Company in 1602 to the current market in 2019.  One question which the creation of size indices creates is how many components should be in the large cap, midcap and small cap indices.  Where should large cap, midcap and small cap begin and end? Currently, each index company treats large cap, midcap and small cap indices differently. Let’s look at how different index companies treat market capitalization.