Indicators of economic trends and investment vehicles
February 6, 2012 | In: ABCs of Finance
In order to determine the general trend of the markets, several indices have been created. These indicators measure the stock performance of a general market or sector. They have become essential tools for portfolio management and often serve as reference for measuring the performance of sectors, countries, but also fund managers. We distinguish between stock indices and bond indices. The barometer’s most famous landmark is the Paris CAC 40.
The CAC 40
Created in 1988 (base 1000 to December 31, 1987), the benchmark index of Euronext is a sample of 40 stocks selected among the 100 largest companies by market capitalization listed in Paris. These securities are also the most liquid, the private and institutional investors often use them to build their portfolios. The CAC 40 is intended to represent the market both in terms of volumes and in terms of industries. This is why it is calculated continuously throughout each session through a weighted average of the market capitalization of each stock.
Four times a year, the Scientific Council of Indices (CSI) meets. He may decide to delete an index value and its replacement by another. Several reasons can be mentioned: the collapse of its market capitalization, lack of liquidity … It is not uncommon to shocks on the values entering or leaving the index, then the managers doing to a reallocation of assets. The company that integrates the CAC 40 in general sees his current progress while that of the value derived tends to fall.
The size, weight and reputation of the securities that make up a good indicator of changes in financial markets. It provides a benchmark for many performances and is also used as support for many products (derivatives, ETFs, certificates, …). He hit a high in meeting on 4 septembre 2000 to 6922.33 points and lower the 29 janvier 1988 to 893.80 points.
Other stock indices
There are many other stock indices representative of NYSE Euronext markets or groups of listed companies: some are built to a standard sized companies, others according to their industry. More recently, indices were created taking into account other more original: this is the case for example in the Euronext FAS IAS, the first index in the world on employee ownership. Launched jointly by Euronext in December 2006 and the French Federation of Associations of employee shareholders and former employees (FAS), this index measures price movements of companies with significant employee ownership (those with at least 3% of capital equity is held by more than a quarter of employees).
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