Data Analytics for Corporate Debt Markets: Using Data for Investing, Trading, Capital Markets, and Portfolio Management

9. Index Basics

Why Do Indexes Matter?

Virtually all securities markets use indexes to measure performance. The best-known use of an index is as a benchmark to measure the performance of a portfolio of securities from the same market. The index measures characteristics such as return on investment, total return, expected future rate of return, yield, or expected future return above the risk-free rate, spread. Each of the measures of an index is an average across the component securities of the index.

Indexes are also used to answer questions about both the behavior of the market and the portfolio managers who manage funds of the market’s securities. Some of these questions are as follows:

• How does the current market compare with historical ...