INVESTING AT THE EDGE

The author defines ''edge investing'' as applying where market capital ization-weighted indexes are poor guides to behavior. Emerging markets are a good example. An emerging market index equal-weighted by countr y has enjoyed far better results than conventional cap-weighted benchm arks. The author uses capital growth theory and market segmentation co ncepts to understand why this should be so. The same ideas can help in many other applications at the edge: venture capital, undiversified d erivatives, and investing on margin.