Volume weighting and index construction

Square-root volume weighting

Each component's weight is proportional to the square root of its trailing 12-month traded volume (in USD). Square-root weighting compresses the gap between the most-traded and least-traded components — pure market-cap weighting would put 60%+ on Birkin 30 alone. Square-root keeps Birkin 30 dominant but lets a Loewe Puzzle still meaningfully contribute.

raw_weight_i = sqrt(volume_i)
weight_i = raw_weight_i / sum(raw_weight_j)

Caps

No single component can exceed 12% of the index, and no single brand can exceed 35%. After computing raw square-root weights we apply caps, then re-normalize so the total returns to 100%. This is checked on every quarterly rebalance.

Chained divisor

Each index has a divisor that absorbs corporate-action-style events: component additions/removals at rebalance, methodology changes, discontinuation reclassification. The divisor is recalculated so the index value is continuous across the event — pricing changes drive the index, structural changes do not.

new_divisor = (sum(price_i * weight_i) for new universe) / index_value_before_event

Rebalance cadence

Quarterly. Each rebalance is recorded in index_rebalance_events with the before/after composition and a methodology version bump. The chained divisor preserves continuity.