The stock or index of the stock market is a measure of part of the stock market. It is calculated from the selected stock price (usually the weighted average). This is a tool used by investors and financial managers to describe the market, and to compare return on certain investments.
The two main criteria of an index are that investable and transparent : the construction method should be clear. Many mutual funds and exchange-traded funds seek to "track" an index (see index fund) with varying degrees of success. The difference between the performance of the fund index and the index is called tracking error .
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Jenis indeks
The stock market index can be classified in many ways. Index of 'world' or 'global' stock markets - such as MSCI World or S & amp; P Global 100 - including shares from different regions. Regions may be defined geographically (eg, Europe, Asia) or with industrialization or income levels (eg, Emerging Markets, Frontier Markets).
The 'national' index represents a country's stock market performance - and, in its proxy, reflects investor sentiment towards its economic situation. The most cited market indices are the national indices comprising of large companies listed in the largest stock exchange in the country, such as American S & amp; P 500, Japan Nikkei 225, and FTSE 100 UK.
Other indices may be regional, such as the FTSE Developed Europe Index or the FTSE Developed Asia Pacific Index. Indexes may be based on exchanges, such as NASDAQ-100 or NYSE US 100, or exchange groups, such as Euronext 100 or Nordic OMX 40.
This concept can be extended far beyond the exchange. The Wilshire 5000 Index, the original total market index, is a stock of almost every public company in the United States, including all US stocks traded on the New York Stock Exchange (but not ADRs or limited partnerships), NASDAQ and the US Stock Exchange.. Russell Investment Group added to the index family by launching the Russel Global Index.
More special indexes track the performance of market-specific sectors. Some examples include the Wilshire US REIT which tracks more than 80 US real estate investment trusts and the Morgan Stanley Biotech Index comprising 36 American companies in the biotech industry. Other indexes can track companies of a certain size, certain types of management, or even more specific criteria - an index published by Linux Weekly News tracks the shares of companies that sell products and services based on the Linux operating environment.
Maps Stock market index
Index version
Some indices, like S & amp; P 500, has several versions. This version can differ based on how the components of the index are weighted and how dividends are accounted for. For example, there are three versions of the S & amp; P 500: price returns, which only consider component prices, total returns, which contribute to dividend reinvestment, and total net income, which contributes to dividend reinvestment after deducting withholding tax. As another example, the Wilshire 4500 and Wilshire 5000 indexes each have five versions: full capitalization returns, full capitalization rates, adjusted floating total returns, adjusted float rates, and equal weight. The difference between full capitalization, float-adjusted, and the same weighted version is how the index components are weighted.
Weight
An index can also be classified according to the method used to determine the price. In the weighted price index such as Dow Jones Industrial Average, NYSE Arca Major Market Index, and NYSE ARCA Tech 100 Index, the price of each component stock is the only consideration when determining the Index value. Thus, price movements and even single securities will greatly affect the value of the index even though the dollar shift is less significant in a relatively highly valued issue, and let alone ignore the relative size of the company as a whole. In contrast, the weighted-capitalization index (also called market-value-weighted) such as the S & amp; P 500 or Hang Seng in company size. Thus, a relatively small shift in the price of a large firm will greatly affect the value of the index.
Traditionally, the capitalization index or stock-weighted all have a full weighting, ie all outstanding shares are included. Recently, many of them have turned into float-adjusted weights that help with indexing.
The equal-weighted index is an index where all the components are given the same value. For example, the 400 Barron Index gives the same value 0.25% for each of the 400 shares included in the index, which together add up to 100% overall.
Modified weighted capitalization index is a hybrid between weighting capitalization and equal weight. This is similar to capitalization loading with one major difference: the largest share is limited to one percent of the total weight of the stock index and overweight will be distributed evenly among the stocks under the cap. Especially in 2005, Standard & amp; Poor's introduces S & amp; P Pure Growth Style Index and S & amp; P Pure Value Style Index which is a weighted attribute. That is, the weight of shares in an index is determined by the score it gets relative to the value attribute that determines the criteria of a particular index, the same size used to select the stock in the first place. For these two indices, scores are calculated for each stock, be it a growth score or a value value (stocks can not be both) and hence they are weighted for the index.
Critics of capitalization-weighting
One of the arguments for capitalization weighting is that investors should, in aggregate, have a portfolio with weighted capitalization. This then gives an average return for all investors; if some investors do worse, other investors should do better (excluding costs).
Investors use theories like modern portfolio theory to determine allocations. It considers risks and returns and does not consider the relative weights to the overall market. This can lead to overloaded assets such as value or small capitalized stocks, if they are believed to have better returns for risk profiles. These investors believe they can get better results because other investors are not that good. The capital asset pricing model says that all investors are very smart, and it is impossible to do better than the market portfolio, the weighted capitalization portfolio of all assets. However, empirical tests conclude that the market indices are not efficient. This may be explained by the fact that these indices do not cover all assets or by the fact that the theory does not apply. The practical conclusion is that the use of a capitalist-weighted portfolio is not necessarily an optimal method.
As a result, the imposition of capitalization has been subject to harsh criticism (see eg Haugen and Baker 1991, Amenc, Goltz, and Le Sourd 2006, or Hsu 2006), suggesting that the weight-capitalization mechanism led to a trend-following strategy. which provides an inefficient risk-return trade-off.
Also, while capitalization-weighting is a standard in the construction of equity indices, different weighting schemes exist. First, while most indexes use weighted capitalization, additional criteria are often taken into account, such as sales/revenues and net income (see "Guide to Dow Jones Global Titan 50 Index", January 2006). Secondly, in response to criticism of the weighting of capitalization, equity indexes with different weighting schemes have emerged, such as "wealth" -weighted (Morris, 1996), "fundamental" -weight (Arnott, Hsu and Moore 2005), "diversity" balanced (Fernholz, Garvy, and Hannon 1998) or the same weight index.
Index and investment management passive
There has been an accelerating trend in recent decades to invest in passively managed mutual funds based on market indices, known as index funds. SPIVA's annual "U.S. Scorecard", which measures the performance of indexes versus actively managed mutual funds, finds that most actively managed funds perform poorly on their benchmarks. One study claims that over time, the average actively managed fund has returned 1.8% lower than the S & amp; P 500 - a result that is almost equal to the ratio of the average cost of a mutual fund (the cost of funds is an obstacle to the exact refund of that ratio). Because index funds seek to replicate index ownership, they eliminate the need for - and thus much of the cost - of research required in active management, and have a lower churn rate (change of securities that loses fund manager support and are sold, at commission and tax costs capital gains).
The index is also a general basis for related investments, exchange-traded funds or ETFs. Unlike index funds, which are priced daily, ETF prices are rewarded on an ongoing, selectable basis, and can be sold for short.
Ethical stock market index
A well-known type of custom index is an index of ethical investment index that only includes companies that meet ecological or social criteria, eg. The Calvert Group, KLD, FTSE4Good Index, Dow Jones Sustainability Index, Global STOXX ESG Leader Index, several Standard Aei Ethics index and Wilderhill Clean Energy Index.
In 2010, the OIC announced the initiation of a stock index that complied with the prohibition of Islamic laws on alcohol, tobacco, and gambling. Other equities like that, such as the Dow Jones Islamic World Market Index, already exist.
Another important trend is strict mechanical criteria for inclusion and exclusion to prevent market manipulation, e.g. in Canada when Nortel was allowed to rise to more than 30% of the TSE 300 index value. The ethical index has a special interest in mechanical criteria, avoiding ideological bias in electoral accusations, and has pioneered techniques for entering and issuing stocks based on complex criteria. Another way of mechanical selection is a mark-to-future method that exploits scenarios generated by some weighted analysts according to probability, to determine which shares become too risky to hold in an index of concern.
Critics of the initiative argue that many companies meet the mechanical "ethical criteria," eg. with regard to board composition or hiring practices, but fails to conduct ethics with respect to shareholders, e.g. Enron. Indeed, the apparent "seal of approval" of the ethical index can make investors calmer, allowing fraud. One response to this criticism is that trust in corporate management, index criteria, funds or index managers, and securities regulators, can not be replaced by mechanical means, so "market transparency" and "disclosure" are the only long-term effective. the road to a fair market. From a financial perspective, it is not clear whether the ethical index or ethical fund would be better than its more conventional counterparts. The theory may indicate that the returns will be lower because the universe that can be invested artificially is reduced and with it the efficiency of the portfolio. On the other hand, companies with good social performance may be better run, have more workers and committed customers, and are less likely to suffer reputation damage from incidents (oil spill, industrial court, etc.) And this may result in more stock prices low. cheerfulness. Empirical evidence on the performance of ethical funds and ethical companies versus their major comparators varies widely for stock and debt markets.
Innovation award for stock index
Media related to Stock market index in Wikimedia Commons
- Stock Index Profile in Wikinvest
- US Stock Index - Latest US and historical stock index data
- India stock index based on median price change - MEXi
Source of the article : Wikipedia
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