Portfolio Performance Measures I Flashcards
What is the benchmark for small cap stocks?
Russell 2000 index
What is the most common benchmark used to evaluate mutual fund managers’ performance?
S&P 500
What is a mutual fund managers’ goal when using a benchmark such as S&P 500?
The managers’ goal is to perform better than the benchmark.
What is the goal of an index fund manager?
Manager’s of an index fund are passively attempting to duplicate the performance of an index.
Which index is the narrowest U.S. Index, consists of only 30 large cap stocks, and is price weighted?
The Dow Jones Industrial Average (DJIA)
Which index is the only index that is price-weighted?
The Dow Jones Industrial Average (DJIA). Price-weighted means that of the 30 stocks, those stocks with the higher share prices will move the index more.
Which index is an index of small companies?
S&P 600
Which index is the large cap index that is capitalization weighted?
S&P 500
What is a capitalization weighted index?
This means that of the 500 large cap companies in this index, the ones that have the higher market capitalization, current share price times number of shares in the public float, will move the index more.
Which index is an index of mid cap companies?
S&P 400 is an index of mid cap companies.
List the order of indices, ranking the size of the companies from smallest to largest.
- S&P 600 - index of small cap companies.
- S&P 400 - index of mid cap companies.
- S&P 500 - large cap index (capitalization-weighted).
Which is the broadest U.S. index?
Wilshire 5000 is the broadest U.S. index, including all U.S. equity securities with readily available pricing data. It originally has almost 5,000 companies but hasn’t had that many since December 2005. The Wilshire 5000 is a capitalization weighted index.
What is market sentiment?
Market sentiment refers to the overall consensus of the market as a whole. If prices in the market are rising, then market sentiment is bullish. If stock prices are falling, then market sentiment is bearish. Generally, market sentiment is measured primarily using technical (quantitative analysis). Some of the most common technical ratios to consider in determining market sentiment include the put/call volume ratio, advance/decline ratio, and new high/new low ratio.
Describe market breadth.
The advance/decline ratio is often used to highlight the market’s breadth. The formula takes the stocks advancing/stocks declining. It can be calculated for different time periods, daily, weekly, or monthly. This ratio allows technical analysts to understand if an increase or decrease in the market index, such as S&P 500, is driven by just a few stocks or by a large number of securities.
If this ratio increases over time it is a bullish indicator.
If this ratio decreases overtime it is a bearish indicator.
A high market breadth ratio can signal an overbought market, one that is ready for a near term decline as investors sell stock to lock in their profits.
A low ratio can signal an oversold market, one that is ready for a near term increase in prices as investors buy a support.
Describe market momentum.
Market momentum is the ability of a market to sustain a decrease or an increase in prices. Market momentum is a function of a price change during a specific period of time versus the trading volume during that period. High trading volume increases the market moment of a price change, a low trading volume decreases the market momentum of a price change. When the S&P 500 index rises alongside heavy trading market momentum would tell investors that the S&P will most likely sustain an upward trend in the following days.
