Equity Index Construction

Broby, Daniel

doi:10.3905/jii.2011.2.2.036

Cited by 9 publications

(7 citation statements)

References 5 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Both the TA25 and S&P 500 indices, which we study in this work, are free float capitalization indices. The Free Float Capitalization-Weighted Index is a market index for which the weight of each stock is determined according to the total market value of their outstanding shares (Broby, 2007). A major difference between the two markets is the index calculation type; while the S&P 500 index is a total-return-index -i.e.…”

Section: Datamentioning

confidence: 99%

See 1 more Smart Citation

The design and performance of the adaptive stock market index

Zatlavi

Kenett

Ben‐Jacob

2014

View full text Add to dashboard Cite

The stock market index is one of the main tools used by investors and financial managers to describe the market and compare the returns on specific investments. Common approaches to index calculation rely on a company's market value generating a weighted average as the index. This work presents new methods of computing adaptive stock market indices based on dynamical properties of the underlying index constituents, and introduces measures to evaluate their performance. The premise behind this work is that the influence of each stock on other stocks should be a major factor in determining the weight given to each stock in the index composition. The methodologies presented here provide the means to construct a dynamic adaptive index, which can be used as a benchmark for the underlying dynamics of the market. We investigate the components of the S&P500 index, and the components of the TA25 index, representing a large (NYSE) and a small (TASE) developed market, respectively. We focus our study on periods before and during the 2008 Sub-prime mortgage crisis. Our results provide evidence that the adaptive-indices provide an effective tool for policy and decision makers to monitor the stability and dynamics of the markets, and identify bubble formation and their ensuing collapse.

show abstract

Section: Datamentioning

confidence: 99%

“…An index may also be classified according to the method used to determine its price; in a price-weighted index the price of each component stock is the only consideration when determining the value of the index. In contrast, a capitalization-weighted index factors in the size of the company (Broby, 2007).…”

Section: Introductionmentioning

confidence: 99%

The design and performance of the adaptive stock market index

Zatlavi

Kenett

Ben‐Jacob

2014

View full text Add to dashboard Cite

show abstract

“…Another important reason for the success of this weighting scheme is its relatively simple implementation with respect to operative trading, as price changes do not necessitate portfolio rebalancing (Amenc et al, 2006). Broby (2011), based on the work of Bailey (1992), states that an index should fulfil the following central requirements: utility for academia and practitioners; acceptability with the CAPM as an efficient portfolio; disciplined and objective construction from accessible information;…”

Section: Introductionmentioning

confidence: 99%

“…In summary, there is a large variety of index strategies. This is caused through 'key trade-offs'; breadth versus inevitability, rebalancing versus turnover costs, and rules versus sampling value judgements, all of which every index strategy has to balance (Broby, 2011). Hence, some may deliver higher returns and a lower CAPM beta, which enable an investor's exposure to either more return or less risk (Arnott et al, 2010).…”

Section: Introductionmentioning

confidence: 99%

A truly market-value weighted commodity index

et al. 2017

View full text Add to dashboard Cite

Commodity indices play a central role in passive commodity investing. However, a closer look at commodity indices reveals huge differences in construction and weighting. For stock market indices on the other side, weighting is generally based on the market capitalization of an asset, according to the capital market theory. In contrast to this sound theoretical and practicable basis for stocks, there is a serious deficiency in commodity indexation. Therefore, in line with the classical capital market theory we present a novel approach to determine the "total investable amount" of commodities, which is the essential requirement for market capitalization based commodity indexation. In addition, we show a comprehensive model application: according to the proposed index weighting, energy allocation is significantly undervalued in existing index compositions, whereas metals and soft commodities are overvalued. Additionally, our results show that a market capitalization weighted commodity index offers very attractive risk-return-characteristics for investors, compared to existing commodity indices.

show abstract

“…The regulation in place until 2013 forced REITs to limit leverage up to 60% of the ratio between financial liabilities and real estate assets(Bank of Italy, 2005;2007).10 The hypothesis tends to be capped, at least for Italian REITs, by the regulatory fee calculation provisions that imposes to calculate the compensation considering, for real estate, the minor between the their market value and acquisition cost.…”

mentioning

confidence: 99%

Untitled

2009

CBR

View full text Add to dashboard Cite

Investors should always argue about management fees because of their impact on net performance that can be substantial. This especially for investments, like real estate, which require intensive management. However, different from traditional mutual funds that are usually related to the gross value of the assets under management, but similar to other financial industry sectors (e.g. hedge funds and private equity funds), REIT managers' compensation structure typically provides a basically fixed payment based alternatively on gross asset value (GAV) or net asset value (NAV). In addition, managers usually also gain a performance fee. The paper analyses how the two alternative compensation schemes influence REITs' investment decisions and capital structure and, consequently, REITs' share value and performance. The final issue addressed is whether-and under which conditions-one compensation scheme is superior to the other. Due to the (usual) market price discount on NAVs, both fee structures incentivise managers to leverage-even in a tax-free environment-in order to maximize the management fees. However, the leverage motivation is stronger for GAV-based than for NAV-based REITs, which are also expected to be more selective in investment decisions. Overall, considering initial fee percentage, GAV-based REITs are expected to execute higher management fees than NAV-based REITs due to the relevant leverage effect. Moreover, debt recourse produces different effects on share value if measured upon market price or net asset value. The empirical analysis focuses on public Italian REITs (2002-2012). The results seem to support the theoretical expectations. GAV-based REITs experience higher debt trends and levels than NAV-based REITs. At the same time, GAV-based REITs register lower real estate asset returns gross and net of management fees for both current and growth yields. Differences in the returns lead to permanent higher performances over total return indexes of NAV-based REITs compared to GAV-based REITs.

show abstract

Equity Index Construction

Cited by 9 publications

References 5 publications

The design and performance of the adaptive stock market index

The design and performance of the adaptive stock market index

A truly market-value weighted commodity index

Untitled

Contact Info

Product

Resources

About