CHAPTER 2
SECURITY MARKET INDICES
LEARNING OUTCOMES
After completing this chapter, you will be able to do the following:
- Describe a security market index.
- Calculate and interpret the value, price return, and total return of an index.
- Discuss the choices and issues in index construction and management.
- Compare and contrast the different weighting methods used in index construction.
- Calculate and interpret the value and return of an index on the basis of its weighting method.
- Discuss rebalancing and reconstitution.
- Discuss uses of security market indices.
- Discuss types of equity indices.
- Discuss types of fixed-income indices.
- Discuss indices representing alternative investments.
- Compare and contrast the types of security market indices.
1. INTRODUCTION
Investors gather and analyze vast amounts of information about security markets on a continual basis. Because this work can be both time consuming and data intensive, investors often use a single measure that consolidates this information and reflects the performance of an entire security market.
in dex, noun (pl. in dex es or in di ces)
Latin indic-, index, from indicare to indicate: an indicator, sign, or measure of something.
Security market indices were first introduced as a simple measure to reflect the performance of the U.S. stock market. Since then, security market indices have evolved into important multipurpose tools that help investors ...
