Index and index fund Fan longzhen
Index and index fund Fan Longzhen
Stock market index Stock market index is an indicator that is designed to reflect the performance of an entire market or a particular market segment Indexes have many uses in investments allow us to quickly and easily assess market performance --Serve as underlying securities for futures and options contracts help us evaluate the performance of fund managers; --facilitate "style analysis for mutual fund m-act as the basis for tracking-error portfolio strategies
Stock market index • Stock market index is an indicator that is designed to reflect the performance of an entire market or a particular market segment. • Indexes have many uses in investments: • --allow us to quickly and easily assess market performance; • --Serve as underlying securities for futures and options contracts; • --help us evaluate the performance of fund managers; • --facilitate “style analysis” for mutual funds; • --act as the basis for “tracking-error” portfolio strategies
Stock indices around the world Lock stock indices: Hang Seng index, Dow Jones Index standard and poor 500 index Nikkei 225 Index International indices: Ftse all-word index FTSE ASia index Investment style indices: Barra Large/ Mid/small cap value/growth. Russell 1000/2000/3000 value/growth Sector indices: Technology Telecom, consumer products, financial index
Stock indices around the world • Lock stock indices: Hang Seng index, Dow Jones Index, Standard and Poor 500 index; Nikkei 225 index. • International indices: FTSE all-word index; FTSE Asia index. • Investment style indices: Barra Large/ Mid/small cap value/growth. Russell 1000/2000/3000 value/growth. • Sector indices: Technology, Telecom, consumer products, financial index
Price-weighted index Price-weighted indexes Less common(e. g. Dow Jones, Nikkei 225 Determined by the average price of the stocks in the Index Stocks are equally weighted by price, i. e. 2P/divisor Where Pit=price of stock i at time t The divisor changes to reflect Changes in index composition Stock splits or stock dividends
Price-weighted index • Price-weighted indexes – Less common(e.g. Dow Jones, Nikkei 225) – Determined by the average price of the stocks in the index; – Stocks are equally weighted by price, i.e. where Pit=price of stock at time t. • The divisor changes to reflect – Changes in index composition; – Stock splits or stock dividends P divisor N i it / 1 ∑= i
Price-weighted index Example. Suppose you begin a price-weighted index of stocks a and b which have, respectively 0 and 100 shares outstanding stock a stock b total price divisor indexlevel 55110.111 0.11 6140.1140 stock a executes a 2-for-1 stock split find a new divisor such that the index level remains the same 100.071140
Price-weighted index • Example. Suppose you begin a price-weighted index of stocks A and B which have, respectively, 10, and 100 shares outstanding t stock A stock B total price divisor index level 0 4 6 10 0.1 100 1 5 5 11 0.1 110 2 6 7 12 0.1 120 3 8 6 14 0.1 140 4 6 10 0.071 140 stock A executes a 2-for-1 stock split find a new divisor such that the index level remains the same