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6.1 - What Is An Index

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16 views11 pages

6.1 - What Is An Index

Uploaded by

gbabubhaiyag
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is an Index ?

According to Wikipedia - A stock index or stock market


index is a measurement of the value of a section of the
stock market. It is computed from the prices of selected
stocks . It is a tool used by investors and financial managers
to describe the market, and to compare the return on
specific investments.
Index
Popular Stock Indexes
Technology
Apple Index
Google

Financials
Index

Goldman Sachs
Uses of Indexes

 They help to recognize the broad trends in the market.


 Convenient way of keeping track of the whole market.
 Used as a benchmark for evaluating the investors portfolio.
 Allocate funds rationally among stocks.
 Acts as a substitute for the market portfolio of risky
assets when calculating the systematic risk of an asset.
 Helps in comparison of returns of different asset classes.
 Acts a basis of index funds.
Selection Criteria

Selection of a particular company into an index depends upon


various factors. Some common factors for selecting a
company into an index is :-
• Market capitalization
• Liquidity
• Public float
• Minimum monthly trading volume
• Financial viability etc
Recap
• An index is basically a collection of specific stocks usually
represented as a index which is based on a specific criteria
showing the overall health of stock market or a particular
part of it.

• It usually acts as an Economic barometer to check whether


the stock market as a whole is on positive note or being
negative.

• Nasdaq, Dow jones, Shanghai, Dax, Cac, Sensex, Nifty are


examples popular stock indexes all over the world.
Recap
• Different indexes track different stocks and financial
instruments.

• Selection of a company into an index is based on various


metrics and after meeting a specific criteria then only the
companies are able to get into an index.

• Some common factors for selecting companies in an Index


are Market capitalization, Liquidity, Public float, Minimum
monthly trading volume, Financial viability etc.
Recap
• Some Important uses of indexes are

1.They help to recognize the broad trends in the market.


2.Convenient way of keeping track of the whole market.
3.Used as a benchmark for evaluating the investors portfolio.
4.Helps in comparison of returns of different asset classes.
5.Acts a basis for index funds.

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