Stock market index
A stock index is a measure of the development of selected stock prices. It aims at the development in this part of the global financial market events documented representative. The starting point for the calculation of an equity index is always a certain point in time. The subsequent changes in the index stock index over time reflect then on the resist performance (performance) of the shares included in the hypothetical portfolio. Stock indices are generally suitable as a simple yet useful barometer ( " market barometer " ) for individual economies and specific sectors.
In a broader sense indexes are also referred to as equity index that do not directly represent stock prices, but others, dependent on stock prices financial derivatives. An example of this is the German volatility index VDAX.
- 3.1 Weighted Price Index
- 3.2 Capitalization Weighted Index
- 3.3 Equal Weighted Index
The selection of stocks that are combined in an index, is due to different decision criteria.
- Benchmark Index or Benchmark Index covers a regional or global market and allows a comparison of Funds between themselves or in relation to other industries or markets (eg S & P 500 or EURO STOXX 50).
- Countries and regions index track the development of a single country or region.
- Blue -chip Index includes the largest companies of a country, a region or the world ( eg DAX).
- Dividend Index includes stocks with the highest dividends (eg DivDAX ).
- Sector or industry index includes stocks mainly in a particular industry are active ( eg automobile production or banks).
- A strategy index followed in the stock selection a predetermined strategy (eg ShortDAX ).
Most indexes start on a specific day on which its composition was determined. For some indices projected backward calculations are carried out in the past. Thus, the German DAX index has been calculated since 1 July 1988 and launched at 1163.52 points. The base index stood at 1,000.00 points as at 31 December 1987. Longer-term recalculations of the German stock index date back to the year 1948.
When price index (also price index, english price index ) The index level is determined solely on the basis of share prices and mostly cleaned up only to income from subscription rights and special. Dividend payments and capital changes are not included in the course and for example in index funds normally distributed. Many blue-chip indices ( eg Dow Jones, Nikkei 225, FTSE 100, CAC 40) take into account the dividends are not, so are price indices.
The Performance Index ( total return index in English ) is calculated as if all dividends and other income from the ownership of shares, such as proceeds of subscription rights, would again reinvested in shares. The German stock index DAX and many other indices are calculated both as a performance and as a price index. Under the colloquial name of the DAX performance index is understood, while internationally, eg in the EURO STOXX 50 stock index, usually the rate index of the question.
Weighting of the components
Price Weighted Index
In the price-weighted index, each share is represented with the same number of pieces. Shares at a higher price then also have a greater impact on the index. Price -weighted indexes such as the Dow Jones Industrial Average and the Nikkei 225
Capitalization -weighted index
A capitalization-weighted index gives priority to the market capitalization ( examples: S & P 500, MSCI, FTSE ). The weighting in the index is proportional to the calculated market capitalization ( free float ) of a company. It is calculated by multiplying the number of shares in the respective free float with the current price.
Equally weighted index
An equal -weighted index based on a ranking based on market capitalization or any other criterion. The weighting in the index is not proportional, but eg limited to 10 %. Examples are the ÖkoDAX, photovoltaic Global 30 Index and the DivDAX. Because changes due to price changes and the percentage composition, these indices are reviewed periodically and automatically, based on a set of rules or adapted by individual decisions (eg in case of insolvency of a company).
Change in the composition in an index
Since many indexes not only the listing in a particular segment as an admission requirement - such as the Prime Standard in Germany - must, but also other criteria as a minimum percentage of free float, an automated adaptation is not always possible, so that at specified intervals occurs a review. Thus, shares in which, for example, Have increased market capitalization and trading volume, re-recorded in an index, another company for divorce from from the index. Extraordinary events such as corporate actions, insolvency or falls below a specified limit free float are usually taken into account in individual decisions.