“Size Does Matter – Back to Market Cap” - A case study for the German Equity Market

“Market capitalization refers to the total dollar market value of a company's outstanding shares. Commonly referred to as "market cap," it is calculated by multiplying a company's shares outstanding by the current market price of one share.” Market cap is probably one of the oldest equity classification concepts and basically exists since the introduction of equity exchanges respectively indices.

As an example, the Swiss National Bank began to calculate a Swiss equity index in 1924. It was the first relatively comprehensive index broken down by sector of activity with a variable index portfolio. The index value corresponded to the market value – in percent of the paid-up capital – weighted by the share capital of the individual companies. Due to the potential divergence between market capitalization of the company as a whole and the free float capitalization, the concept of calculating indices based on the free float market capitalization became subsequently the “de-facto” standard for market cap index families.