There have been some significant back testing of results for both cap-weighted and equal-weighted indexes.
From all that I've read, equal-weighted has strongly outperformed over the past 20 or so years, but it's hard to tell if that's a pattern.
In regards to the virtues of the EMH- I can tell you there are a lot of dumb people doing dumb things with their investments. Certain stocks, for example Tesla (TSLA) and Twitter (TWTR) attract a lot of people from 2 categories promoted by a 3rd:
1--- Retail investors who think they are investing in an 'awesome story,' but have no idea about the underlying. They couldn't tell you the difference between items on an income statement or balance sheet if their life depended on it.
2--- 'Pro investors' who are focused on strong 1 year returns who simply chase the popular stocks in efforts to ride the train. This is known as the "greater fool theory," essentially, I know the company is worthless, but the stock is popular, so I'm going to ride the elevator up!
3--- News media operates with stocks similar to "the squeaky wheel gets the grease." Essentially JCPenny, Blackberry and others get bashed almost daily while Netflix, Twitter, Tesla, etc get daily pumping from the news media due to their exploding stock prices.
The combination of #1-#3 can lead to massive short-term run ups in stocks that have no business being worth say $1-$5B, let alone $20-$40B.
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For those who believe in the EMH, I have to ask them about the 90s crash? The 2008 housing bubble/crash? The 1990-1991 oil crisis crash?
Lots of smart people were screaming about the housing bubble as early as 2006, but the market kept on surging. Same thing with tech stocks in 1998. People were mocking Warren Buffett on a daily basis back then.
EMH has been presented and pseudo 'proven' based on a few methods:
1- Dartboard vs. Indexing -- on average the two perform very similar. // Response: Duh, the dartboard is just a smaller sample of the index, so of course if you add enough dartboard portfolios together the performance is close to the index.
2- Backtesting with ratios -- this has shown that historical P/E and P/B don't really matter, as the 1y returns are almost always similar on average // Response: This critique fails to account for 2 things: 1) Studies have shown that long-term 'value' stocks have trumped 'growth' stocks even though y/y fluctuations can be wildly different. Check out the Fama/French study 2) It only focuses on ratios, not forward estimates or industry prospects. Lots of companies with higher P/E that are just having a 1-off year like Johnson Johnson 2 years ago, also companies with lower P/Es that are clearly dying such as Blackberry 2 years ago with a P/E of like 7.
3- Performance of managers vs. indexes -- this has shown that something like 90% of managers underperform in 5 years, and 95% in 10 years. // Response: This fails to account for the massive twisted incentive structure most managers operate under. 1y results are all that really matter for flows of funds, so many managers are chasing each other around and are more focused on momentum than value.
If mutual funds are ignored, and hedge funds and private equity (think Icahn, Einhorn, Buffett, Blackstone, etc) are studied instead, the results are shockingly in favor of active management.
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I really got off topic here, since your first question regarded cap-weighted vs. equal-weighted. In essence I favor the latter. Personally I actively manage my IRA and trading accounts, but my 401k is all passively indexed. For investors not wanting to spend the time or who don't get enjoyment out of stocks, I fully recommend indexing.
The #1 thing to focus on is the expense ratio. Vanguard offers many options with .05-.2% expense ratios. If the equal-weighted is say, 0.2%, it sounds fair, but if it's really high like 0.5%-1%, than avoid it.
Unfortunately for investors some of the most stable ETFs and Mutual Funds that focus on value stocks with stable/growing dividends also have scary expense ratios of 0.5-0.8%. These expense ratios will probably sap away a lot of the extra returns despite what I perceive as a safer/superior investment.