Explanation

Equity style indexes are designed to represent specific investment styles or characteristics within the equity market. The two primary dimensions for equity style classification are:

1. Value vs. Growth: This classification is based on fundamental characteristics such as price-to-earnings (P/E) ratios, price-to-book (P/B) ratios, dividend yields, and other valuation metrics. Value stocks typically have lower valuation ratios, while growth stocks have higher valuation ratios but higher expected earnings growth.

2. Market Capitalization: This refers to the size of companies, typically categorized as large-cap, mid-cap, or small-cap. Market capitalization is calculated as share price multiplied by the number of outstanding shares.

Why the other options are incorrect:

• Option A (geography and sector): While geography and sector are important classifications for equity indexes, they are not specifically "style" classifications. Geography refers to regions/countries, and sector refers to industry groups.

• Option C (asset class and GDP weight): Asset class refers to broad categories like equities, bonds, real estate, etc., not equity styles. GDP weight is typically used in some country indexes but is not a style classification.

Key Points:

• Style indexes help investors implement factor-based investing strategies
• Common style indexes include: Russell 1000 Value Index, Russell 1000 Growth Index, S&P 500 Value Index, etc.
• These indexes allow investors to target specific risk-return characteristics in their portfolios

Correct Answer: B - Equity style indexes are indeed classified by value and/or growth characteristics combined with market capitalization.