Market-cap weighting avoids costly rebalancing that equal-dollar weights require

Evidence

The problem with equal dollar weights, however, is that to maintain them as stock prices fluctuate requires frequent rebalancing of the portfolio, which incurs transaction costs. Later index funds tended to seek to track the S&P 500 index, which includes stocks not traded on the New York Stock Exchange and, crucially, weights them by market capitalization, so the need for rebalancing is greatly reduced. — Donald MacKenzie, An Engine, Not a Camera, 1482

Categorization

• XREF: links to the index-fund material in chapter 4 (the Samsonite plan) and to broader financialization literature on index investing mechanics. — connects to: Market-clearing logic forces the single optimal portfolio to be the market itself — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 250

Broader Connections

• Market-clearing logic forces the single optimal portfolio to be the market itself #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 250