What is capitalization banding?
The motivation for creating large and small capitalization indexes is based on the premise that large stocks and small stocks behave differently and thus require specific benchmarks to capture their behavior. Russell identified the distinction between large- and small-cap investment managers over twenty years ago in the U.S., and more recently it has been demonstrated in global markets as well. Much academic research has been focused on determining the appropriate dividing line between large and small stocks, but Russell’s research in this area shows that there is no precise line separating large and small cap, especially when looking across multiple regions; instead the division between large and small stocks is best established using a range or capitalization “band” around which representative large- and small-cap indexes can be created. Based on a comprehensive historical analysis of the Russell U.S. and Global Indexes, Russell has determined that using a 5% band (+/-2.5%) around th
