The Dow Jones Industrial Average is a price-weighted average of
30 blue-chip stocks, which are generally the leaders in their
industry and are listed on the New York Stock Exchange. It has
been a widely followed indicator of the stock market since 1
October 1928.
The Dow Jones Transportation Average is a price-weighted average
of 20 transportation stocks, which are listed on the New York Stock
Exchange.
The Dow Jones Utilities Average is a price-weighted average of 15
utility companies, which are listed on the New York Stock
Exchange and who are involved in the production of electrical
energy.
The Dow Jones Composite Average is a price-weighted average of
65 stocks, which trade on the New York Stock Exchange. The
average is a combination of the Dow Jones Industrial, Transportation
and Utilities Averages.
The Standard & Poor’s 100 Index is a capitalization-weighted
index based on 100 highly capitalized stocks for which options are
listed on the CBOE.
The Standard & Poor’s 500 Index is a capitalization-weighted
index of 500 stocks designed to measure performance of the broad
domestic economy through changes in the aggregate market value
of 500 stocks representing all major industries.
The Standard & Poor’s Midcap 400 is a capitalization-weighted
index, which measures the performance of the mid-range sector of
the US stock market.
The Standard & Poor’s Smallcap 600 Index is a capitalizationweighted
index, which measures the performance of selected US
stocks with a small market capitalization.
The NYSE Composite Index is a capitalization-weighted index,
which includes all companies listed on the New York Stock
Exchange.
The Philadelphia Value Line Index is a price-weighted index
developed to track the performance of the overall US economy.
The Wilshire 5000 Equity Index measures the performance of all
US-headquartered equity securities with readily available price
data. The index is an excellent approximator of dollar changes in
the US equity market.
The NASDAQ Composite Index is a broad-based capitalizationweighted
index of all NASDAQ National Market & SmallCap
stocks.
The NASDAQ-100 Index is a capitalization-weighted index of the
100 largest OTC stocks.
The Russell 1000 Index measures the performance of the 1000
largest companies in the Russell 3000 Index, which represents
approximately 90% of the total market capitalization of the Russell
3000 Index.
The Russell 2000 Index is composed of the smallest 2000
companies in the Russell 3000 Index, representing approximately
11% of the Russell 3000 total market capitalization.
The Russell 3000 Index measures the performance of the 3000
largest US companies based on total market capitalization, which
represents approximately 98% of the investable US equity
market.
Other important US indices include:
- American Stock Exchange Composite Index
- Fortune 500 Index
- 30-Year Treasury Bond Index
- CBOE Gold Index
- AMEX Major Market Index
- PSE Technology Index
The various indices of the markets worldwide are, as we have noted,
used in a variety of ways and by various entities and investors. An
index is created to be representative of the leading shares in a market.
The Financial Times Stock Exchange 100 Index, better known as the
FTSE 100 or the ‘footsie’, consists of the leading 100 shares listed on
the London Stock Exchange ranked by capitalization and weighted to
reflect each shares percentage of the overall index. The market
capitalization is the number of shares in issue multiplied by the mid
price of the shares, and thus the capitalization of companies changes
particularly as the share price changes, and so too does that of the
companies ranking within the index. The greater the capitalization
and ranking the higher the weighting such that a significant
movement in price of the hundredth ranked stock will have the same
impact on the value of the index as a much smaller movement in the
share price of the company ranked first in the index.
Turnover is high in the shares of companies in indices as they are
used for so many investment and benchmarking purposes, as well as
having many derivative products based on them. It is therefore
important for operations teams to be aware of the shares in the
various major indices and how volatile the share price is. They must
also know which markets the shares are traded on, whether it is
electronic or open-outcry trading, if they are traded over-the-counter
as well as on exchanges, whether they are in registered or bearer form
and settlement dematerialized, how easy it is to settle these shares
and who the clearing house is, what the expected dividend
announcement and pay dates are, who the company registrar or agent
is, etc. This information is vital as trading, clearing and settlement
processes may be straightforward, highly automated and dematerialized
or complex, manual and certificated.
On 31 December 2001 the FTSE 100 consisted of the companies
shown in Table 3.2, each of which is traded on the Stock Exchange
Electronic Trading System (SETS).
Today so much dealing and investment in equities is via index-based
products that one would be forgiven for thinking that nobody trades
the humble ordinary share. To some extent that is true. In the UK the
percentage of private client transactions in equity shares has fallen
and instead the investment tends to be made in retail products like
unit trusts. There are several reasons for this: partially cost, partially
the lack of awareness of the markets and also losses. Many small
investors, having been tempted by the UK government’s privatization
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