# Is there any index calculation methodology that is suitable when constituents change frequently?

Trying to create a custom stock sector index, however adding/dropping of the constituents will be frequent.

Which kind of index calculation methodology (e.g. Price Weighted, Equal Weighted, Cap Weighted) is suitable for this sector index construction? Or, will any re-balancing be able to cancel the effect of adding/dropping?

• How do you define index here? – Bob Jansen Sep 8 '15 at 11:48
• Any kind of index methodology, e.g. Price Weighted, Equal Weighted, Cap Weighted. – roy104 Sep 8 '15 at 12:13
• I hope you like the edit, I guess the best method depends on your goals and how you measure your success in meeting them and the criteria for adding/dropping constituents. Can you specify those? – Bob Jansen Sep 8 '15 at 13:03
• I would probably consider the concept of an index to be broader than the concept of a benchmark. There are a number of goals for a benchmark that you don't necessarily need to have with an index. You want to easily replicate someone's benchmark. You have a bit more freedom with an index. That means that what's "suitable" depends. For instance, you could specify some objective and then tell the optimizer to constrain turnover in order to handle frequent adds or drops. Lots of options. – John Sep 8 '15 at 15:37