Chapter 15 Flashcards
Uses of indices
Movements
Portfolios
Analysis
Index funds
Derivative
Standard
Valuation
Picture
Comparison
Two problems when constructing indices of unlisted or illiquid assets
- The lack of reliable and up-to-date price data
- The heterogeneity of the assets included
Obtaining price data
Unique
Changes
Subjective
Different
Infrequent
Confidentiality
Choice of index
- Popularity - how widely followed is the index by various classes of investors?
- Benchmarking - is the index used as a benchmark for European equity mandates?
- Frequency - how often is the index published?
- Total return/withholding taxes - would need to be a total return index (preferably net of withholding taxes)
- Method of index construction
- Frequency of updates to constituents (or any weightings)
- Capitalisation weighted or based on some other weighting process
International Equity indices
- FTSE Global Equity Index series
- Morgan Stanley Capital International indices
FTSE Global Equity Index series
Factors
1. 8000 securities
2. 48 countries
3. 98%
Segments:
1. Developed
2. Advanced emerging
3. Secondary Emerging
Morgan Stanely Capital International indices
These are a widely used series of international equity indices covering both developed and emerging markets. They are calculated on a market capitalization-weighted arithmetic basis and total returns are published both gross and net of withholding tax.
Portfolio-based indices
Rental values, capital values, or total return
Different
Underlying portfolio
Size, regional spread, and sector weighting
Barometer indices
The Barometer type of index aims to track movements in the property markets at large by estimating the maximum full rental values of a number of hypothetical rack-rented properties.
UK indices
FTSE 100 Index
FTSE 250 Index
FTSE 350 super sector Indexes
FTSE Small cap index
FTSE All-share index
FTSE fledgling index
FTSE AIM index
FTSE UK Index series characteristics
Indices covering the whole quoted UK equity market
All indices are to be calculated on a weighted arithmetic average basis
Market capitalizations as weights
Published information:
Average dividend cover
Actual dividend yield
Price-to-earnings ratio
Ex-dividend adjustment
FTSE 100 Index
100 largest quoted companies
80% of total UK market capitalization
FTSE 250 Index
250 companies below the top 100
FTSE 350 Supersector indexes
Derived from FTSE 100 and FTSE 250
FTSE Smallcap index
Covers companies below the top 350
2% of the UK market capitalization
FTSE Allshare index
Represents 98-99% of the UK market capitalization
FTSE Fledgling index
Contains sufficiently marketable, quoted companies too small to be in the small-cap index
FTSE AIM index
Covers companies in the UK alternative investment market
Companies too small to apply for indices
USA indices
Dow Jones
S&P500
NASDAQ
Dow Jones
30 Shares
Unweighted
Quick guide
Limited use for a gauge of market performance
Standard & Poor’s
Composite index
Weighted arithmetic index
A broad cross-section of all sectors
NASDAQ
Composite index
All common stocks traded in the NASDAQ market
NASDAQ 100 is the basis for stock index futures
Japan indices
Nikkei
Topix
Nikkei
225 constituents but not the largest 225 companies
50% of the market value of the Tokyo exchange
Topix
The Tokyo stock exchange first index
Approximately 1700 shares
Weighted arithmetic index
Germany
DAX - real-time index of thirty leading shares, it is a total return index
France
CAC - The main market index is the CAC general index, comprising 250 shares.
The CAC-40 consists of 40 of the largest stocks and was introduced as a vehicle for futures contracts
