cap weighted vs value weighted

CFA Level III Portfolio Management
#1

Simple question but can’t find it on wiki pedia. What is the difference between value and cap weighted? reason why i’m asking is that these terms show up in alternatives. NCREIF index is value weighted and NAREIT is cap weighted. is value weighted another name for market value weighted, and cap weighted is aka as price weighted?

#2

value weighted and cap ( slang for market-capitalization ) weighted mean the same thing . they explain that in Chapter 27 ( Equity portfolio management , Bk 4 , page 205 , section 4.1.1)

#3

if they mean the same thing why does schweser on page 18 of study session 13, book 4 in figure 2 specifically state NCREIF index is value weighted and NAREIT is cap weighted?

#4

I went to the NCREIF website . Here’s what they say about weighting 'properties":

Each property’s return is weighted by its market value (value-weighted)

also from

http://world-finances.com/alternative-portfolios/benchmarks-national-council-of-real-estate-investment-fiduciaries-ncreif

they say that NAREIT is market cap weighted.

So schweser has no business to distinguish between the two

#5

It looks to me that the link says the same thing. I’m really confused.

“Begun in 1972, the NAREIT Index is a real-time, market-cap- weighted index of all REITs actively traded on the New York Stock Exchange and American Stock Exchange.”

"The NCREIF Index is essentially value weighted and includes subindices grouped by real estate sector (apartment, industrial, office, and retail) and geographical region. "

#6

Market-cap is meaningful for publically traded securities.

#7

I think it is really simple:

NCREIF is an index based on properties ( i.e. real estate properties ). The index itself is constituted by aggregating property prices based on when they last transferred ownership or by appraisal . So there are no shares , only an aggregate price . Market capitalization doesn’t apply , because each property is unique , and the index only weights it by its “value” i.e. what reasonable price it would transfer ownership.

NARIET on the other hand is an index of NYSE traded REITs . Each REIT has shares and prices published at least once a day. So each REIT ( the security in the NAREIT index ) can be capittalization weighted . It is actively traded unlike the NCREIF securities which are not traded in an exchange with daily prices

#8

thanks for the explanation. I still don’t really get it, but i think memorizing this would do. Can’t see them testing on this.

#9

i think i got it. It just took reading the text book and your comment a couple more times. Thanks!