Quĩ đầu tư - Chapter 2: Security market indices

Example: Calculation of Index Values over Multiple Time Periods For an index with an inception value set to 1,000 and price returns of 5 percent and 3 percent for Periods 1 and 2 respectively, the values of the price return index would be calculated as follows:

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Chapter 2 Security Market Indices PresenterVenueDateDescription of a Security Market IndexSecurity market indexPrice return indexTotal return indexConstituent securitiesValue of a Price Return IndexVPRI = the value of the price return indexni = the number of units of constituent securities in the indexN = the number of constituent securities in the indexPi = the unit price of constituent security iD = the value of the divisorCalculation of Single-Period Price ReturnPRI = the price return of index portfolio I PRi = the price return of constituent security iwi = the weight of security iPi1= the price of constituent security i at the end of the periodPi0= the price of constituent security i at the beginning of the periodSecurityBeginning of Period Price (€)Ending of Period Price (€)Dividends per share(€)Shares OutstandingLMN10.0012.000.50200OPQ25.0024.001.00100RST15.0018.000.25400Divisor = 100Example: Calculation of Single-Period Price ReturnCalculation of Single-Period Total ReturnsTRI = the total return of the index portfolioIncI = the total income from all securities in the indexTRi = the total return of the constituent security iInci = the total income from security iSecurityBeginning of Period Price (€)Ending of Period Price (€)Dividends per share(€)Shares OutstandingLMN10.0012.000.50200OPQ25.0024.001.00100RST15.0018.000.25400Divisor = 100Example: Calculation of Single-Period Total ReturnCalculation of Index Values over Multiple Time Periods The calculation of index values over multiple time periods requires geometrically linking the series of index returns.PeriodReturn (%)CalculationEnding Value01,000(1.00)1,000.0015.001,000(1.05)1,050.0023.001,000(1.05)(1.03)1,081.50For an index with an inception value set to 1,000 and price returns of 5 percent and 3 percent for Periods 1 and 2 respectively, the values of the price return index would be calculated as follows:Example: Calculation of Index Values over Multiple Time Periods Choices in Index Construction and ManagementWhich target market should the index represent?Which securities should be selected from that target market?How much weight should be allocated to each security in the index?When should the index be rebalanced?When should the security selection and weighting decision be re-examined?Target Market SelectionTarget marketDefined broadly or narrowly?Based on an asset class?Based on geographic region?Based on an exchange?Other characteristics?Different Weighting Methods Used in Index ConstructionIndex weightingPrice weightedEqual weightedMarket capitalization weightedFundamentally weightedWeighting SchemesPrice weighted:Equal weighted:Market capitalization weighted:Factor weighted:EXHIBIT 2-1 Example of a Price-Weighted IndexEXHIBIT 2-3 Example of an Equal-Weighted Equity IndexEXHIBIT 2-4 Example of a Market-Capitalization-Weighted Equity IndexComparison of Fundamental Weighting with Market-Capitalization WeightingStock AEarnings = €20Market cap = €200Market cap weight = 20%Fundamental weight = 50%Stock BEarnings = €20Market cap = €800Market cap weight = 80%Fundamental weight = 50%Assume a 2-stock Index, consisting of Stock A and Stock B:Advantages and DisadvantagesPrice weightedSimpleHigh price stocks have greater impactStock splits result in arbitrary changesEqual weightedSimpleUnder- and over-representationFrequent rebalancingMarket capitalization weightedSecurities held in proportion to their valueSimilar to a momentum strategyFundamental weightedEnsures a value or contrarian tiltData intensiveRebalancingMay become necessary as market prices changeCreates turnoverRebalancingReconstitutionBeginning indexReconstitution dateNew indexChange constituent securities?Uses of Market IndicesGauges of market sentimentProxies for measuring and modeling returns, systematic risk, and risk-adjusted performanceProxies for asset classes in asset allocation modelsBenchmarks for actively managed portfoliosModel portfolios for such investment products as index funds and exchange-traded funds (ETFs)Equity IndicesEquity indicesBroad marketWilshire 5000 Total Market IndexMultimarketMSCI Emerging MarketsSectorGSTI Semiconductor IndexStyleDow Jones U.S. Small-Cap Value IndexChallenges Facing Fixed Income Index ConstructionIlliquid securitiesNumber of securitiesLack of pricing dataFixed income indexEXHIBIT 2-9 Dimensions of Fixed-Income IndicesMarketGlobalRegionalCountry or currency zoneType CorporateCollateralizedSecuritizedMortgage-backedGovernment agencyGovernmentMaturityFor example, 1–3, 3–5, 5–7, 7–10, 10+ years; short-term, medium-term, or long-termCredit qualityFor example, AAA, AA, A, BBB, etc.; Aaa, Aa, A, Baa, etc.; investment grade, high yield Indices for Alternative InvestmentsCommoditiesReal estateHedge fundsIndices for alternativeinvestmentsCommodity IndicesRisk-free interest rateChanges in futures pricesRoll yieldCommodity index returnReal Estate IndicesAppraisal indicesRepeat sales indicesReal estate investment trust (REIT) indicesOwnership of propertiesInvestment in mortgagesEXHIBIT 2-12 The FTSE EPRA/NAREIT Global REIT Index FamilySource: FTSE International, “FTSE EPRA/NAREIT Global & Global Ex US Indices” (Factsheet 2009).Hedge Fund IndicesHedge funds are private investment vehicles that typically use leverage and long and short investment strategies.Research organizations maintain databases of hedge fund returns and summarize these returns into indices.Most indices reflect performance on a broad global level or on a strategy level. Most indices are equal weighted.Problems Caused by Voluntary Investment ReportingVoluntary investment performanceSurvivorship biasIndices reflect different performances for the same time periodSummaryPrice return indexTotal return indexChoices in index construction and managementAdvantages and disadvantages of different weighting schemesRebalancing and reconstitutionUses of market indicesEquity, fixed income, and alternative investment indices

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