Index Computation.

University of Massachusetts, Boston **We aren't endorsed by this school
AF 335
Oct 21, 2023
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1 Stock Market Indexes Examples Overall stock market - Dow Jones Industrial Average (PW) S & P 500 (VW) Wilshire 5000 (VW) NYSE Composite (VW) Value Line Composite (EW) Nasdaq Composite (VW) Russell 100, Russell 3000 (VW) Small stocks - Russell 2000 (VW) Global - EAFE (VW) Japanese stocks - Nikkei 225 (VW) Industries, etc Index - measures the performance of a particular market or group of securities
2 Often use an index as a benchmark to: (1) outperform if you are a professional money manager (2) evaluate historical performance if you are an investor Problem: You have a bunch of stocks in your "universe". How do you measure how the entire group does? Answer: Measure the performance of a portfolio of the stocks. The sum of portfolio weights equals 1. Stock Market Indexes
3 Three Asset Example Return on portfolio where But there are lots of different weights that satisfy this constraint. Different types of indexes correspond to different ways of assigning portfolio weights. Three types of indexes, using different weights (1) Price-Weighted (PW) Average (2) Value-Weighted (VW) Average (3) Equally-Weighted (EW) Average C C B B A A P r w r w r w r 1 C B A w w w
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