index calculation.docx

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BRAZIL

Bovespa Index (IBovespa) is the main indicator of the average performance of theBM&FBovespaexchange. The IBovespa covers more than 80% of the trades and approximately70% of the market capitalization of the exchange[1].

Calculations and Weighting

The IBovespa uses the Negotiability index to calculate the criteria and weighting of the stocks onthe index. The Negotiability Indexhelps us understand the representation of the stock in thecash market on the exchange, which allows us to ascertain the participation of every componentof the IBovespa. This is similar to theFree float methodused by various indices using themarketcapitalizationmethod for calculating the index level.

Negotiabiliy Index =[2]

o ni = number of trades carried out for stock "i"o vi = value created from the trades of stock "i"o N = Total number of trades on the BM&F Bovespao V = Total value created by the N number of trades in the BM&F Bovespa

GERMAN

Weighting and Calculation

The DAX indices are all calculated usingcapitalizationweighted index using the total returnLaspeyres index for calculations[1].

DAX Indices are weighted by shares.

The formula is:Current index = Current total market cap of constituents Previous Value / Previous Period

In comparison, the Shanghai SSE indices use the Paasche weighted composite price indexformula[2].This means that the index bases its calculations on its previous period for itscalculations as compared to theShanghai Composite Index,which bases it on the base period.

The Base date for the index is 30 December, 1987 and it was started from a base value of 1,000.The Xetra system calculates the index after every 1 minute.[3]

For more information, go tohow stock indices work
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INDEX (THEORY)

An index, when used with respect to financial markets, is a statistical measure of change in asecurities market.Indexes, or indices(both are correct in American English), are imaginaryportfoliosofsecurities(usuallystocks)representing a particular market or a portion of it.

This is the chart for theDow Jones Industrial Average.Scroll down for a list of major worldindices on Wikinvest.

Generally, an index has three main purposes:

An Index shows the performance of a basket of equities instead of just a single equity -IE an index isdiversified.

An index can show the performance of a particular class of assets - for example, abiotechnology index would show the performance of a diverse group of biotechcompanies over time.

An index can also be used to provide a generic securities category for passivemanagement and derivatives (passive investing).Each index is calculated using its own methodology, and its value is expressed in terms of achange from an original base value. So the numerical value of an index is not as significant asthe percent change in the index.

Investing in indexes is a way to invest in the performance of a broad market sector, or in themarket as a whole. But to trade an index, an investor must buy or sell through a third party. Stockand bond market indexes are used to makemutual fundsandexchange-traded funds (ETFs)thatmirror the performance of the index. Regardless of security type, indexing can cover broad

categories such as a Total Market Index like (VTI), index investing can also be more micro andtrack sectors such as Small Cap Brazilian Companies (BRF).

When investing in anExchange Traded Fundsthat tracks an index, an investor buys or sells anentire group of stocks when trading that particular ETF - an example is theStreetTRACKS DowJones Global Titans Index Fund (DGT).Some indexes allow investors to put money intocommodities- an example is thePowerShares DB Commodity Index Tracking Fund (DBC)-while others, like theBaltic Dry Index (BDI),are important economic indicators used to measurethe rates under which services are sold in a particular industry (in the case of the BDI,dry bulkshipping). Still others are forward looking, measuring the anticipated volatility of the markets -an example is theNasdaq Volatility Index (VXN)

FTSI

This article describes anindexthat measures the performance of anexchange,industryor ageographic

region.Viewarticlesreferencing this index. called thefootsie, the Financial Times Stock Exchange 100 is
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ten industries listed in the Industry Classification Benchmark. It uses free-float market capweighting.

HANK KANG STOCK EXCHANGE:

Hang Seng index is amarket capitalizationweighted index that follows the top 40 or socompanies that trade on theHong Kong Stock Exchange.The index covers over 65% of the totalmarket capitalization of the exchange[1].The index is maintained and published by the Hang SengIndexes Company Ltd, a subsidary of the Hang Seng Bank in HK, since 1969. These companiesare classified into sub categories namely, Commerce and Industry, Finance, Properties andUtilities. These sub-categories are published as indexes as well.

Stock Selection Criteria

Constituent stocks of the HSI are selected by a rigorous process of detailed analysis, supportedby extensive external consultation. To be eligible for selection, a company:

must be among those companies that constitute the top 90% of the total market value of alleligible shares listed on the SEHK (market value is expressed as an average of the past 12

months);

must be among those companies that constitute the top 90% of the total turnover of all eligibleshares listed on the SEHK (turnover is aggregated and individually assessed for eight quarterly

sub-periods over the past 24 months); and

should normally have a listing history of at least 24 months on the SEHK[2]

Weighting

The Hang Seng is calculated with this formula:

[3]

[4]
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[5]

Free Float Adjustment

TheFree float Adjustmentfactor, or FAF for short, represents the proportion of shares that isfreefloated as a percentage of issued shares and then its rounded up to the nearest mulitple of 5%for calculation purposes. The compilation with a Cap factor was switched to the FAF, September2006 onwards. The cap factor was originally calculated in each regular half yearly, such thatnone of the stocks weighed in more than 15% percent.

Contents

1 Stock Selection Criteria 2 Weighting

o 2.1 Free Float Adjustment 3 Composition 4 References

To find the free-float capitalization of a company, first find its market cap (number ofoutstanding shares x share price) then multiply its free-float factor.

The free-float factor is determined by the percentage of floated shares to outstanding. For

example, if a company has a float of 4 million shares and outstanding shares of 5 million, thepercent of float to outstanding is 80%. A company with an 80% free float falls in the 75-80%free-float factor, or 0.80, which is then multiplied by its market cap. For example: $120 million(12 million shares at $10/share) x 0.80 = $96 million.[6]

KOSPI 200 is the South Korean index, indicative of the top 200 stocks in theKorea Exchange.Itmaps over 70% of the total capitalization of the exchange and is the most liquid index for the

South korean market. The KOSPI 200 was started on January 3rd, 1990 with a base value of100[1].TheFuturesandOptionsmarkets in Korea use this index to base their calculations.KOSPI 200 is updated every 2 seconds and is published by the statistical KRX publication of theKorean Exchange[2]

Weighting and Calculations
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The KOSPI is calculated as follows with CurrentMarket Capitalization(=market capitalizationat the time of comparison) as the numerator and Base Market Capitalization (=marketcapitalization as of January 4, 1980) as the denominator.

That is:

Current index = Current total market cap of constituents 100 / Base Market Capitalization[3]

The base market capitalization is adjusted when there is a change in the value due to rightsoffering, new listing, delisting, mergers, etc.

So the New Base Market Capitalization would be[4]:

Past Market Capitalization*(Current Market Cap +- change in market cap)/Current Market Capon the day before the change.

rticle is about the S&P 500 index. For the article on the company SPX Corporation, clickhere.

The S&P 500 is a stock market index containing the stocks of 500 American Large-Capcorporations. The index is owned and maintained by Standard & Poor's, a division ofMcGraw-Hill.All of the stocks in the index trade on the two largest US stock markets, theNew YorkStock ExchangeandNasdaq.TheDow Jones Industrial Averageand the S&P 500 are the mostwidely watched indexes of large-cap US stocks. The S&P 500 is often quoted using the symbol

SPX or INX, and may be prefixed with a caret (^) or with a dollar sign ($).

Many index funds and exchange-traded funds track the performance of the S&P 500 by holdingthe same stocks as the index, in the same proportions, and thus attempt to match its performance(before fees and expenses). Partly because of this, a company which has its stock added to thelist may see a boost in its stock price as the managers of the mutual funds must purchase thatcompany's stock in order to match the funds' composition to that of the S&P 500 index.Additionally, the S&P 500 index is often used as a baseline level of performance against whichmutual funds and other asset managers' performance is measured.

Composition of the S&P 500 Index
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S&P 500 sector break-down[1]

The S&P 500 index is notmade up of the 500 largest corporations in the U.S., since other factorssuch as liquidity of the stock and industry grouping are also considered in selecting members forthe index.

Contents

1 Composition of the S&P 500 Index 2 S&P 500 Index Calculation

o 2.1 Impact of constituent's share price changeo 2.2 Index Maintenance

3 Investing in the S&P 500 Index 4 Historical S&P Performance 5 References

The criteria for being added to the index are as follows:

Must be a "U.S. company". This is determined by looking at location of company'soperations, its corporate structure, its accounting structure and its exchange listing.

Must have minimum $5 billionmarket capitalization.The minimum is reviewedoccasionally to ensure that it takes in to account market conditions.

Must have a minimumpublic floatof 50%, which means that at least half of thecompany's share must be publicly tradable.

Must be financially viable. Companies are expected to have at least four consecutivequarters of positive as-reported earnings
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Must be operating companies. Closed-end funds, holding companies, partnerships,investment vehicles and royalty trusts are not eligible while Real Estate InvestmentTrusts (REITs) and business development companies (BDCs) are eligible for inclusion tothe index.

Should have adequate liquidity and moderate price per share. The ratio of annualdollar value traded to market capitalization for the company should be 0.30 or greater.Very low or extremely high priced shares are also considered to be illiquid.

The index must remain reflective of the various sectors in the U.S. economy . Thissignifies that even if a company has all the qualifying characteristics, it may not beselected if the sector it operates in is already accounted for in the index.

It should be noted that these criteria are applicable to companies that are being added to the S&P500. Since the index committee attempts to minimize unnecessary turnover in indexmembership, existing companies do not have to diligently maintain these conditions to remain in

the index. However, companies that substantially violate one or more of these criteria areremoved from the index and replaced by a new company. As a result, on a year-to-year basis, thecomposition of the index only changes slightly.

composite index comprises of all the A shares and B shares listed on theShanghai StockExchange.The index can be tracked all the way back to Dec 19, 1990 and to a price of 100.Index trade volume is scaled down by a factor of 1000.

Weighting and Calculation

SSE Indices are all calculated using aPaasche weighted composite price index formula[1],similarto theCSI 300 Index.This means that the index is based on its base period for its calculations ascompared to certain other exchanges, like theDAX,which base their calculations on theprevious period (the laspyres price index calculation).[2]

Composite Indices and Sector Indices are weighted by shares.

The formula is:Current index = Current total market cap of constituents Base Value / Base Period

Total market capitalization = (price shares issued)[3]

The B share stocks are generally denominated in US dollars for calculation purposes. Forcalculation of other indices, B share stock prices are converted to RMB at the applicable
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exchange rate (the middle price of US dollar on the last trading day of each week) atChina Foreign Exchange Trading Center and then published by the exchange.

Sensex is amarket capitalizedindex that tracks 30 stocks from theBombay Stock Exchange,which are representative of the stocks from various sectors of theBombay Stock Exchange.Theyaccount for approximately one fifth of the capitalization of the exchange. It is the second largestexchange of India in terms of volume and first in terms of shares listed. The BSE Sensex hasmore than ten thousand shares listed.[1]

Weighting

The index is calculated based on afree-float capitalization method;a variation of the market cap

method. Instead of using a company's outstanding shares it uses its float, or shares that arereadily available for trading. The free-float method, therefore, does not include restricted stocks,such as those held by company insiders.

The Free float Adjustment factor, or FAF for short, represents the proportion of shares that isfreefloated as a percentage of issued shares and then its rounded up to the nearest mulitple of 5%for calculation purposes. To find the free-float capitalization of a company, first find its marketcap (number of outstanding shares x share price) then multiply its free-float factor.

The free-float factor is determined by the percentage of floated shares to outstanding. Forexample, if a company has a float of 4 million shares and outstanding shares of 5 million, the

percent of float to outstanding is 80%. A company with an 80% free float falls in the 75-80%free-float factor, or 0.80, which is then multiplied by its market cap. For example: $120 million(12 million shares at $10/share) x 0.80 = $96 million.[

Nikkei 225 Stock Index maps companies on the Tokyo Stock Exchange (TSE). It is the oldestand the most well known Asian index in the world. The Nihon Keizai Shimbun (Nikkei)newspaper has been commisioned to officially calculate this index since 1971. The Nikkei 225

began to be calculated on September 7, 1950, retroactively calculated back to May 16, 1949.Currently. the Nikkei is used as the major indicator for the Japanese economy, similar to theDow Jones Industrial Average (.DJIA).In fact, it was known as the "Nikkei Dow Jones StockAverage" from 1975 to 1985.[1].However, unlike the Dow Jones, as the Nikkei 225 is designedto reflect the overall market, there is no specific weighting of industries. Stock splits, removalsand additions of constituents impact upon the effective weighting of individual stocks and thedivisor.[2]
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Weighting and Components

The Nikkei is aprice weighted average index(the unit isYen), similar to the Dow Jones Index,based on a par value of 50 per share. That means, a 50 price change in any stock affects theaverage the same way, regardless of whether the stock is priced at 5 or 500 per share. The

Nikkei 225 index's components are reviewed every year in September. Any changes, if required,are published in October and the index is adapted accordingly.

To calculate anequal weighted index,the market capitalization for each stock used in thecalculation of the index is redefined so that each index constituent has an equal weight in theindex at each re-balancing date. In addition to being the product of the stock price, the stocksshares outstanding, and the stocks float factor and the exchange rate when applicable; a newadjustment factor is also introduced in the market capitalization calculation to establish equalweighting.

Stock Market Value= Price of shares * Number of shares outstanding * Free float factor *Exchange Rate(if applicable) * Adjustment Factor[3]

The Adjustment factorof a stock is assigned to the stock at each re-balancing date, whichmakes the stock value for each stock equal. For index component, the value would be:

Adjustment Factor= Index specific constant "Z"/(Number of shares of the stock*Adjustedstock market value before re-balancing)

The main criticism with this index is that a $5 priced share would have the same weight as the$200 priced share, which gives the smaller shares more weight than their due. Moreover, thestocks keep changing and so does the equality, so the stock has to be rebalanced from time to

time[4]as compared to a cap weighted index.

Deutscher Aktien Index, or DAX 30for short, is theblue chipmarket index for theFrankfurtStock Exchange.It follows the top 30 german stocks on the electronic Xetra system that is usedon the exchange.

Weighting and CalculationThe DAX indices are all calculated usingcapitalizationweighted index using the total returnLaspeyres index for calculations[1].

DAX Indices are weighted by shares.

The formula is:
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Current index = Current total market cap of constituents Previous Value / Previous Period

In comparison, the Shanghai SSE indices use the Paasche weighted composite price indexformula[2].This means that the index bases its calculations on its previous period for itscalculations as compared to theShanghai Composite Index,which bases it on the base period.

The Base date for the index is 30 December, 1987 and it was started from a base value of 1,000.The Xetra system calculates the index after every 1 minute.[3]

For more information, go tohow stock indices work

Selection

The index sample of the DAX is selected according to the following six criteria[4]:

generally a company needs to be listed for at least three years prior to the inclusion of itsstock in the DAX;

the free-floating capital must at least reach 15%; turnover; market capitalization; availability of early opening prices, and branch representativeness for the German economy.

SINGAPOE:

The Straits Times Index (also called the STI) is the benchmark index for theSingaporeExchange.It covers 30 companies which are deemed representative of the Singapore market.The Singapore Exchange works with the UK BasedFinancial Times Stock Exchange 100 Index(UKX-LN)in order to maintain the FTSE ST Index Series.[1]

GERMANY:

Bovespa Index (IBovespa) is the main indicator of the average performance of theBM&FBovespaexchange. The IBovespa covers more than 80% of the trades and approximately70% of the market capitalization of the exchange[1].

Calculations and Weighting
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The IBovespa uses the Negotiability index to calculate the criteria and weighting of the stocks onthe index. The Negotiability Indexhelps us understand the representation of the stock in thecash market on the exchange, which allows us to ascertain the participation of every componentof the IBovespa. This is similar to theFree float methodused by various indices using themarketcapitalizationmethod for calculating the index level.

Negotiabiliy Index = [2]o ni = number of trades carried out for stock "i"o vi = value created from the trades of stock "i"o N = Total number of trades on the BM&F Bovespao V = Total value created by the N number of trades in the BM&F Bovespa

CompositionCriteria for Inclusion in the Portfolio

The Ibovespa is composed by the stocks that must meet the criteria as stipulated by theexchange[3]:

They should have been traded on the exchange in the past twelve months. To be included in the group of stocks whose negotiability indexes added represent 80% of the

total value of all individual negotiability indexes.

The trading share of the stock should be higher than 0,1% of the total share flow in theexchange.

More than 80% of the shares of the stock must be traded on the exchange.

What are indices?

Indices allow investors to gain an insight into the performance of an asset class or a segment ofthat asset class. Indices are used as the underlying for various financial instruments and tobenchmark the performance of portfolios designed to replicate the performance of a given assetclass.

Why trade indices?

By trading index futures, options, warrants, CFDs, and index tracking Exchange Traded Funds(ETFs) an investor could gain exposure to the performance of the index or hedge an existingportfolio.
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