August 17, 2009

The impact of the demise and bankruptcy of a few stalwarts of industry and the trouble experienced by some survivors has led to a significant decline in market capitalization for many companies. That, in turn, may have led to the exclusion of some of these companies from market indices. Recently during a conversation, one of our clients brought up the issue in the context of a survivor bias in the measurement of market indices returns and market capitalization when compared to total market returns and total market wealth. At issue was whether these changes in the indices mask the true impact of the valuation and net worth changes in the economy.

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