Aggregating MSCI World Returns from Market-Cap-Weighted Subindices

Summary

The document addresses why returns computed from MSCI World subindices may not match the published parent-index return when weights are based on each subindex’s index level. The answer states that MSCI indices are market-cap weighted, so a rough reconstruction should weight each subindex’s return by its share of total market capitalization rather than by its reported price level. It gives the US market’s approximate share as an illustration of this weighting principle.

This method can provide a close estimate, but exact replication requires following the official MSCI Index Calculation Methodology. The response does not supply the detailed formulas or identify all data inputs needed for an exact reconstruction. Differences may therefore remain when using simple capitalization weights, and the explanation does not address implementation details such as index rebalancing or currency treatment.

Key ideas

• MSCI World is described as market-cap weighted across its component markets.
• Subindex index levels are not appropriate weights for aggregating returns.
• A rough reconstruction weights component returns by each market’s share of total market capitalization.
• Exact replication requires applying the official index calculation methodology.

Tags

# Aggregation to MSCI world return from subindicies


# Aggregation to MSCI world return from subindicies












I have Bloomberg Data `PX_LAST` for the MSCI world (MXWO Index). I also have Bloomberg Data `PX_LAST` for all subindices for the MSCI world. My goal is to compute from the subindices the return of the index. I tried log and percentage returns and aggregating based on these formulas. I weighted them like that, $$\textrm{weight Subindex}_i=\frac{\textrm{PX_LAST}_i}{\sum\textrm{PX_LAST}_j} $$

Unfortunately, the results do not match the returns of the index itself.

Where can I find information on how the MSCI world index is aggregated from its subindices?

Does anybody know how they are aggregated?

I found this link https://www.msci.com/index-methodology but wasn't lucky finding any info there either.

## Answer by Helin (score 2, accepted)

https://quant.stackexchange.com/a/34820

The document you're looking for is MSCI Index Calculation Methodology. At a very high level, MSCI indices are market-cap weighted. A crude aggregation would require that you weight the component returns by their market cap as a percentage of total market cap. For example, US currently has a 59% weighting in the index (where 59% = US market cap / world market cap). Doing this should get you close, but if you need exact values, you need to follow the formulas in the document precisely.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.