Index Construction Methodologies in Passive Equity Investing

Passive equity investing relies on tracking a market index to achieve returns similar to that index, rather than actively selecting individual securities. One important aspect of passive investing is index construction, which dictates how an index is formed and maintained.

Describe the main methodologies used in index construction, including capitalization weighting, equal weighting, and fundamental weighting. Explain the advantages and disadvantages of each methodology in the context of passive equity investing.