Concentration Doesn’t Matter

Using stock-level data for MSCI ACWI country indices going back to 1984 for Developed markets and 1988 for Emerging markets, we find that market concentration adds little predictive power for long term forward returns. Whatever predictive power it has disappears once we include traditional metrics like value and size. The same is true for idiosyncratic index risk. Index concentration is just not very important for determining risk and return in equity markets.