Stock Market Indices
代写留学生论文Stock market indices measure the rises and falls in baskets of stocks, and therefore act like a ‘barometer’ of market conditions and sentiments. They are designed to pull together the disparate movements of different share prices, each responding to myriad individual pressures, to find out whether the market, or a subsection of it, is moving up or down, in a bullish or bearish direction. Indices are important benchmarks for measuring the performance of the fund managers who put money into the stock market on behalf of investors.
For financial managers too, such benchmark information is highly valuable for understanding both the performance of their individual companies and investor’s evaluation of their prospects
Financial Times Stock Exchange FT-SE-
• FT 30 Share Index started in 1935
• Compiled from the share prices of 30 leading British companies
• Its up and down movement is intended to reflect the mood of the market
• It used to be biased towards major industrial and retailing companies, but now includes financial and telecoms stocks
Problems
• Comprises mainly industrial companies and ignores the service sector
• 30 companies are too few to be representative of the market
• The index is unweighted (all shares count equally regard of their market capitalisation)
• It is not a good index against which to measure the performance of a portfolio
FT-SE Actuaries All Share Index(1962)
• Reflect the movements of over 900 shares
• Comprises all companies with a market value above £40m
• Each company in the index is weighted according to its market value
• Better index for gauging the performance of a portfolio.
• It is an aggregation of the FTSE 100, FTSE 250 and FTSE Small Cap Indices
• Is less affected by price movements than FTSE 100 and this makes it a useful index for a tracker fund
• It provides the widest representation of diversified UK share portfolio
• The All Share Index is divided into 35 sectors covering the various sectors in which the UK companies operate
FT-SE 100 Share Index
• Started at the end of 1983
• The base date of the index was 1 January 1984, when the base was 1000.0
• Reflects price movements of the 100 largest companies
• It is an arithmetic weighted index and is re-weighted everyday
• It can be calculated in real time- it changes constantly throughout the day
• Introduced mainly to deal in equity index options and futures
• Most widely quoted in reports of daily market performance
• Mirrors a real portfolio; includes both service and manufacturing companies
• Represents approximately 80% of the total capitalisation of the UK equity market
• The constituents of the index are reviewed quarterly
FT-SE mid 250 Index is comprised of the next 250 companies after the FTSE 100 companies by market capitalisation. It is a real time index, representing approximately 18% of the total UK market capitalisation.
FT-SE Actuaries 350 Index is a weighted arithmetic index of the shares in both the FT-SE 100 and the mid 250, hence the top 350 shares
• It is designed to better reflect movements in the market as a whole than does the FT-SE 100 Index
FTSE Small Cap Index is comprised of companies with the smallest capitalisation of the capital and industry segments of the All-Share Index. This index approximates 2% of the UK market capitalisation.
The Small Cap index is calculated in real time, and a review of constituent companies is held quarterly
FT-SE Eurotop 100 covers major continental European companies
This index consists of the 100 largest companies in Europe according to market capitalisation. It has been designed specifically for the creation of derivatives (stock index futures and options), which need to be based on baskets of very liquid, easily tradeable stocks.
FT-SE Eurotop 300: this index measures the performance of the 300 largest companies in Europe in terms of market capitalisation, whether they are in the euro-zone or not. The index represents about 70 per cent of the region’s total market capitalisation and has become an accepted European benchmark.
FTSE € Stars
This index, launched in June 1999 is made up of 28 highly liquid, blue chip constituents from five different euro-zone stock markets and is designed to be the easiest cross border index to trade in Europe.
The Dow Jones Industrial Average- is based on 30 shares
• Has been computed since 1896 and the base number is 100
• It is price-weighted, so a move in a share price of a company can have a great influence on the day’s price movement
• It measures the return on a portfolio that holds one share of each stock
• Its purpose is to measure market movements over the short term and not to provide any estimates of market return
• To help predict market trends and to provide measures of market volatility
Standard and Poor
Standard and Poor represents an improved index on Dow Jones Average
1. It is more broadly based index of 500 firms
2. It is a market value-weighted index
3. It represents about 80% of the total market capitalisation of the US market
The rate of return of the index equals the rate that would be earned by an investor holding a portfolio of all 500 firms in the index in proportion to their market values.
Standard and Poor also publishes a 400 stock Industrial Index, a 20 stock Transportation Index, a 40 stock Utility Index, and a 40 stock Financial Index.
National Association of Securities Dealers Automated Quotations (NASDAQ) system operates on computer screens throughout the US, predominantly for dealing in over the counter markets (OTC).
The OTC market in the US is very large (accounts for about 20 % of the market value of the shares listed on the major US market).
One of the key features of an OTC market is that the financial products sold are tailored to the individual needs of the customer.
In the UK the OTC market started in 1972 and was run by a firm of investment bankers called Granville & Co. Its purpose is to make it easier for a seller to find a buyer
Japan’s Nikkei 225
• It is a price weighted index
France’ s CAC40 index
• The CAC 40 is the main real time indicator, but is a subset of the SBF-120 Index.
• The SBF 120 is in turn a subset of the SBF 250, which has replaced the old CAC General Index
Germany- DAX 30
• The DAX 30 is the principal real-time share index for 30 major stocks in Germany
• It is a total return index, meaning that it measure the price movements of its constituents plus dividends paid to shareholders
The Hang Seng Index covers a selection of Hong Kong equities
Calculation of FTSE indices
The FTSE indices are generally arithmetical weighted indices. The weights are the market capitalisation of each company (shares in issue x share price). The larger the company, the greater is its weighting in the index. Thus, a movement of 1 % in the share price of one of the larger companies in the index will have a greater effect on the index than a 1 % movement in the share price of a smaller constituent company.
代写留学生论文The weights applied are adjusted to reflect the free float of the shares of each company. The free float is the proportion of shares that are available to trade on the stock market. If the free float is less than 75% of the total number of shares, then the weighting is adjusted accordingly.
The index is calculated as:
• The sum of the market values (or capitalisations) of the companies in the index, after any free float adjustment
• Divided by the market values at the base date for the index
• Multiplied by the base number, e.g. 100
Examples
An index is a scaling of numbers so that a start is made from a base figure of 100
Year Price
1
2
3
4 0.25
0.30
0.40
0.47
To construct a simple index we need to scale the £0.25 to the base figure of 100. We then divide the other prices by £0.25 and multiply by 100.
Year
1
2
3
4 Price
0.25
0.30
0.40
0.47
(0.25/0.25) x 100
(0.30/0.25) x 100
(0.40/0.25) x 100
(0.47/0.25) x 100 Index
100
120
160
188