Bridge over ocean
23 October 2023 Financial Analysts Journal Volume 80, Issue 1

Exclude with Impunity: Personalized Indexing and Stock Restrictions

  1. Yin Chen
  2. Roni Israelov
Low to moderate levels of stock exclusions have immaterial impact on passive portfolios, but the impact on active portfolios varies with the factor in consideration. Overall, investors can exclude many stocks with little deterioration in performance.
Read the Complete Article in the Financial Analysts Journal CFA Institute Member Content In Practice: Member Companion Feature Read Brief CFA Institute Member Content


Using simulated historical backtests, we study the impact of stock exclusions on the performance of passive and active portfolios. We find that at low to moderate numbers, stock exclusions have very little influence on passive portfolios. Their effects on active portfolios vary by the factor in consideration and the portfolio construction method, but the magnitudes are much smaller than suggested by the percentage of stocks being excluded. We find similar patterns with industry-concentrated exclusions. Overall, our results suggest that investors should feel comfortable excluding a fairly large number of stocks before experiencing any significant deterioration in their investment performance.

We’re using cookies, but you can turn them off in Privacy Settings.  Otherwise, you are agreeing to our use of cookies.  Accepting cookies does not mean that we are collecting personal data. Learn more in our Privacy Policy.