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Security Market Indexes and Index Funds (Chapter 4) - Coggle Diagram
Security Market Indexes and Index Funds (Chapter 4)
security-market indexes
benchmarks to evaluate the performance of professional money managers
create and monitor an index fund
measure market rates of return in economic studies
predicting future market movements by technicians
substitute for the market portfolio of risky assets
differentiating factors in constructing market indexes
weighting of sample members
unweighted (equal-weighted) index
fundamental weighted index
market-value weighted index
price-weighted index
computational procedure
arithmetic average
geometric average
compute an index
sample
source
breadth
size
stock market indexes
price weighted index: arithmetic mean of current stock prices, which means that index movements are influenced by the differential prices of the components
Dow Jones Industrial Average
total the current price of the 30 stocks and divide it by a divisor
Nikkei-Dow Jones Average
arithmetic average of prices for 225 stocks on the First Section of the Tokyo Stock Exchange (TSE)
value-weighted index
derive the initial total market value of all stocks used in the series
market value = number of shares outstanding x current market price
index = [sum of(ending prices for stocks on day t x number of outstanding shares on day t)] / [sum of(ending price for stocks on base day x number of outstanding shares on base day)]
unweighted index
all stocks carry equal weight
used by individuals who randomly select stocks and invest same dollar amount in each stock