Definitions
In plain terms
It translates concentration into the size of an equally weighted portfolio with the same HHI.
Technical
Compute 1/sum(w_i^2) after declaring share basis, normalization, eligibility, and treatment of cash or negative exposures.
Scope
It need not equal the actual constituent count and is invalid under incompatible share conventions.
Formula
Effective N = 1 / HHIN_{eff}=\frac{1}{HHI}| Symbol | Meaning | Unit |
|---|---|---|
HHI | sum of squared normalized constituent shares | squared-share index |
Output unit: effective constituents
Examples
- A Fintech Builder lesson can compute or identify Effective Number of Constituents only after declaring its inputs, timing, and edge-case rules.
Common misconceptions
- It need not equal the actual constituent count and is invalid under incompatible share conventions.
Concept relationships
Prerequisites
Where this concept is used
Evidence and governance
- Herfindahl-Hirschman Index U.S. Department of Justice · official standard
Supports: preferred label, short definition, technical definition, formula
Limits: Antitrust concentration thresholds do not automatically apply to index-constituent concentration; this glossary reuses only the mathematics.
- Reviewed by
- fintech-builder-batch-005
- Last reviewed
- 2026-07-27
- Next review
- 2027-07-27
- Record status
- evidence reviewed
This record is evidence-reviewed and readable, but not yet promoted to published — it is served noindex,follow and excluded from the sitemap.