# equity: Herfindahl Index

I remember the formula is sum(weght(i)^2), why some time we could take the 1/ HHI to get the total number of equal size firm? Thanks.

Because HHI, your denominator is essentially the proportionate share that one firm has with the market. If you assume that all firms are equal size then a firm with 2% mkt share would result in 1/.02= 50 comparable size firms.

but HHI is from that weight ^2, not simply the weight. that is why I don’t understand why 1/HHI could get total number of the firm… Chuckrox8 Wrote: ------------------------------------------------------- > Because HHI, your denominator is essentially the > proportionate share that one firm has with the > market. If you assume that all firms are equal > size then a firm with 2% mkt share would result in > 1/.02= 50 comparable size firms.

it is market share of company. (company sales / Total Sales)^2 summed up for all companies in industry. if there are 10 companies, each 10% share 10 * 0.1^2 = 10 *0.01 = 0.1 1/0.1 = 10… harmonic averaging is happening…