Market Indexes Examples
Lecture 1.4: Market Indexes
Investment Analysis
Fall, 2012
Anisha Ghosh
Tepper School of Business
Carnegie Mellon University
November 1, 2012
Market Indexes Examples
Market Indexes
Indexes are used to represent the return performance of broad classes
of nancial securities.
1
Stock market indexes
2
Bond market indexes
3
Indexes of foreign nancial markets
Different techniques used for computing indexes:
1
Price Weighted Index
2
Value Weighted Indexes
3
Equally Weighted indexes
Market Indexes Examples
Market Indexes
Indexes are used to represent the return performance of broad classes
of nancial securities.
1
Stock market indexes
2
Bond market indexes
3
Indexes of foreign nancial markets
Different techniques used for computing indexes:
1
Price Weighted Index
2
Value Weighted Indexes
3
Equally Weighted indexes
Market Indexes Examples
Price-Weighted Indexes
The Dow Jones Industrial Average Index (DJIA): consists of a
price-weighted average of 30 large "blue chip" companies
the DJIA is computed as the average price of the 30 stocks in the
index with the averaging procedure adjusted for stock splits and
dividends.
The Dow corresponds to a portfolio that holds one share of each
component stock the investment in each company is proportional to
the companys share price. Therefore, the Dow is called a
price-weighted average.
Market Indexes Examples
Price-Weighted Indexes
The Dow Jones Industrial Average Index (DJIA): consists of a
price-weighted average of 30 large "blue chip" companies
the DJIA is computed as the average price of the 30 stocks in the
index with the averaging procedure adjusted for stock splits and
dividends.
The Dow corresponds to a portfolio that holds one share of each
component stock the investment in each company is proportional to
the companys share price. Therefore, the Dow is called a
price-weighted average.
Market Indexes Examples
Price-Weighted Indexes
The Dow Jones Industrial Average Index (DJIA): consists of a
price-weighted average of 30 large "blue chip" companies
the DJIA is computed as the average price of the 30 stocks in the
index with the averaging procedure adjusted for stock splits and
dividends.
The Dow corresponds to a portfolio that holds one share of each
component stock the investment in each company is proportional to
the companys share price. Therefore, the Dow is called a
price-weighted average.
Market Indexes Examples
Value-Weighted Indexes
The Standard and Poors Composite 500 stock index (S&P 500): is
the market-value-weighted index.
it is computed by calculating the total market value of the 500 rms in
the index on the current day and the previous day of trading.
The % increase in the total market value from one day to the next
represents the increase in the index.
The rate of return of the index equals the rate of return that would be
earned by an investor holding a portfolio of all 500 rms in the index in
proportion to their market values
Market Indexes Examples
Value-Weighted Indexes
The Standard and Poors Composite 500 stock index (S&P 500): is
the market-value-weighted index.
it is computed by calculating the total market value of the 500 rms in
the index on the current day and the previous day of trading.
The % increase in the total market value from one day to the next
represents the increase in the index.
The rate of return of the index equals the rate of return that would be
earned by an investor holding a portfolio of all 500 rms in the index in
proportion to their market values
Market Indexes Examples
Value-Weighted Indexes
The Standard and Poors Composite 500 stock index (S&P 500): is
the market-value-weighted index.
it is computed by calculating the total market value of the 500 rms in
the index on the current day and the previous day of trading.
The % increase in the total market value from one day to the next
represents the increase in the index.
The rate of return of the index equals the rate of return that would be
earned by an investor holding a portfolio of all 500 rms in the index in
proportion to their market values
Market Indexes Examples
Value-Weighted Indexes
The Standard and Poors Composite 500 stock index (S&P 500): is
the market-value-weighted index.
it is computed by calculating the total market value of the 500 rms in
the index on the current day and the previous day of trading.
The % increase in the total market value from one day to the next
represents the increase in the index.
The rate of return of the index equals the rate of return that would be
earned by an investor holding a portfolio of all 500 rms in the index in
proportion to their market values
Market Indexes Examples
Equally-Weighted Indexes
An equally-weighted average of the return of each stock in an index is
sometimes used to measure market performance.
such an averaging technique corresponds to a portfolio strategy that
places equal dollar values on each stock
Market Indexes Examples
Equally-Weighted Indexes
An equally-weighted average of the return of each stock in an index is
sometimes used to measure market performance.
such an averaging technique corresponds to a portfolio strategy that
places equal dollar values on each stock
Market Indexes Examples
Market Indexes
Stock market indexes: DJIA, NYSE Index, S&P 500, Amex Index
Bond market indexes: The best known bond indexes are constructed by
Merrill Lynch and Salomon Brothers
International indexes: Nikkei (Japan), FTSE (U.K.), DAX (Germany), ...
Market Indexes Examples
Market Indexes
Stock market indexes: DJIA, NYSE Index, S&P 500, Amex Index
Bond market indexes: The best known bond indexes are constructed by
Merrill Lynch and Salomon Brothers
International indexes: Nikkei (Japan), FTSE (U.K.), DAX (Germany), ...
Market Indexes Examples
Market Indexes
Stock market indexes: DJIA, NYSE Index, S&P 500, Amex Index
Bond market indexes: The best known bond indexes are constructed by
Merrill Lynch and Salomon Brothers
International indexes: Nikkei (Japan), FTSE (U.K.), DAX (Germany), ...
