Stock market lifetime average return
A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks typically a weighted average. It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. An index is a mathematical construct, so it may not be invested in directly.
But many mutual funds and exchange-traded funds attempt to "track" an index see index fundand those funds that do not may be judged against those that do. Stock market indices may be classified in many ways. Regions may be defined geographically e.
A 'national' index represents the performance of the stock market of a given nation—and by proxy, reflects investor sentiment on the state of its economy. Other indices may be regional, such as the FTSE Developed Europe Index or the FTSE Developed Asia Pacific Index.
Indexes may be based on exchange, such as the NASDAQ or NYSE USor groups of exchanges, such as the Euronext or OMX Nordic The concept may be extended well beyond an exchange. The Wilshire Index, the original total market index, represents the stocks of nearly every publicly traded company in the United Statesincluding all U.
Russell Investment Group added to the family of indices by launching the Russel Global Index. More specialized indices exist tracking the performance of specific sectors of the market.
Some examples include the Wilshire US REIT which tracks more than 80 American real estate investment trusts and the Morgan Stanley Biotech Index which consists of 36 American firms in the biotechnology industry.
Other indices may track companies of a certain size, a certain type of management, or even more specialized criteria — one index published by Linux Weekly News tracks stocks of companies that sell products and services based on the Linux operating environment. The difference between the full capitalization, float-adjusted, and equal weight versions is in how index components are weighted.
Dow Jones Industrial Average - Wikipedia
An index may also be classified according to the method used to determine its price. In a price-weighted index such as the Dow Jones Industrial AverageNYSE Arca Major Market Indexand the NYSE ARCA Tech Indexthe price of each component stock is the only consideration when determining the value of the index. Thus, price movement of even a single security will heavily influence the value of the index even though the dollar shift is less significant in a relatively highly valued issue, and moreover ignoring the relative size of the company as a whole.
How Much Does the Stock Market Return? » Money Boss
In contrast, a capitalization-weighted also called market-value-weighted index such as the Hang Seng Index factors in the size of the company. Thus, a relatively small shift in the price of a large company will heavily influence the value of the index. Traditionally, capitalization- or share-weighted indices all had a full weighting, i. Recently, many of them have changed to a float -adjusted weighting which helps indexing. An equal-weighted index is one in which all components are assigned the same value.
A modified capitalization-weighted index is a hybrid between capitalization weighting and equal weighting. It is similar to a capitalization weighting with one main difference: That is, a stock's weight in the index is decided by the score it gets relative to the value attributes that define the criteria of a specific index, the same measure used to select the stocks in the first place.
For these two indexes, a score is calculated for every stock, be it their growth score or the value score a stock cannot be market maker forex strategy and accordingly they are weighted for the index. One argument for capitalization weighting is that investors must, in aggregate, hold a capitalization-weighted portfolio anyway.
This then gives the average return for all investors; if some investors do worse, other investors must do better excluding costs. Investors use theories such as modern portfolio theory to determine allocations. This considers risk and return and does not consider weights relative to the simple forex tutorial market. This may result in overweighting assets such as value or small-cap stocks, if they are believed to have a better return for risk profile.
These investors believe that they can get a better result because other investors are not very good. The capital asset pricing model says that all investors are highly intelligent, and it is impossible to do better than the market portfolio, the capitalization-weighted portfolio of all assets. However, empirical tests conclude that market indices are not efficient.
Stock market index - Wikipedia
The practical conclusion is that using capitalization-weighted portfolios is not necessarily the optimal method. As a consequence, capitalization-weighting has been subject to severe criticism see e. Haugen and BakerAmenc, Goltz, and Le Sourdor Hsupointing out that the mechanics of capitalization-weighting lead to trend-following strategies that provide an inefficient risk-return trade-off.
Also, while capitalization-weighting is the standard in equity index construction, different weighting schemes exist. There has been an accelerating trend in recent decades to create passively managed mutual funds that are based on market indices, known as index funds. Advocates claim that index funds routinely beat a large majority of actively managed mutual funds; one study [ citation needed ] claimed that over time, the average actively managed fund has returned 1.
Since index funds attempt to replicate the holdings of an can you really make money from selling avon, they eliminate the need for — and thus many costs of — the research entailed in active management, and have a lower churn rate the turnover of securities which stock market lifetime average return fund managers' favor and are sold, with the attendant cost of commissions and capital gains taxes.
Indices are also a common basis for a related type of investment, the exchange-traded fund or ETF. Unlike an index fund, which is priced daily, an ETF questrade options agreement priced continuously, is optionable, and can be sold short. A notable specialized index type is those for ethical investing indices that include only those companies satisfying ecological or social criteria, e. Inthe OIC announced the initiation of a stock index that complies with Islamic law 's ban on alcohol, tobacco and gambling.
Other such equities, such as the Dow Jones Islamic Market World Indexalready exist. Another important trend is strict mechanical criteria for inclusion and exclusion to prevent market manipulation, e. Ethical indices have a particular interest in mechanical criteria, seeking to avoid accusations of ideological bias in selection, and have pioneered techniques for inclusion and exclusion bse stock market price gainers stocks based on complex criteria.
Another means of mechanical selection is mark-to-future methods that exploit scenarios produced by multiple analysts weighted according to probability, to determine which stocks have become too risky to hold in the index of concern.
Critics of such initiatives argue that many firms satisfy mechanical "ethical criteria", e. Indeed, the seeming "seal of approval" of an ethical index may put investors more at ease, enabling scams. One response to these criticisms is that trust in the corporate management, index criteria, fund or index manager, and securities regulator, can never be replaced by mechanical means, so " market transparency " and " disclosure " are the only long-term-effective paths to fair markets.
From a financial perspective, it is not obvious whether ethical indices or ethical funds will out-perform their more conventional counterparts.
Theory might suggest that returns would be lower since the investible universe is artificially reduced and with it portfolio efficiency. On the other hand, companies with good social performances might be better run, have more committed workers and customers, and be less likely to suffer reputational damage from incidents oil spillages, industrial tribunals, etc.
Sharpe Indexing Achievement Awards are presented annually in order to recognize the most important contributions to the indexing industry over the preceding year. Media related to Stock market indexes at Wikimedia Commons. From Wikipedia, the free encyclopedia.
Primary market Secondary market Third market Fourth market. Common stock Golden share Preferred stock Restricted stock Tracking stock. Authorised capital Issued shares Shares outstanding Treasury stock. Broker-dealer Day trader Floor broker Floor trader Investor Market maker Proprietary trader Quantitative analyst Regulator Stock trader. Electronic communication network List of stock exchanges Opening times Multilateral trading facility Over-the-counter.
Alpha Arbitrage pricing theory Beta Bid—ask spread Book value Capital asset pricing model Capital market line Dividend discount model Dividend yield Earnings per share Earnings yield Net asset value Security characteristic line Security market line T-model. Algorithmic trading Buy and hold Concentrated stock Contrarian investing Day trading Dollar cost averaging Efficient-market hypothesis Fundamental analysis Growth stock Market timing Modern portfolio theory Momentum investing Mosaic theory Pairs trade Post-modern portfolio theory Random walk hypothesis Sector rotation Style investing Swing trading Technical analysis Trend following Value investing.
Block trade Cross listing Dark liquidity Dividend Dual-listed company DuPont analysis Efficient frontier Flight-to-quality Haircut Initial public offering Margin Market anomaly Market capitalization Market depth Market manipulation Market trend Mean reversion Momentum Open outcry Public float Public offering Rally Returns-based style analysis Reverse stock split Share repurchase Short selling Slippage Speculation Stock dilution Stock market index Stock split Trade Uptick rule Volatility Voting interest Yield.
Retrieved from " https: Stock market Stock market indices. All articles with unsourced statements Articles with unsourced statements from February Articles with unsourced statements from January Wikipedia external links cleanup from September Wikipedia spam cleanup from September Navigation menu Personal tools Not logged in Talk Contributions Create account Log in.
Views Read Edit View history. Navigation Main page Contents Featured content Current events Random article Donate to Wikipedia Wikipedia store. Interaction Help About Wikipedia Community portal Recent changes Contact page.
Tools What links here Related changes Upload file Special pages Permanent link Page information Wikidata item Cite this page. In other projects Wikimedia Commons. This page was last edited on 24 Marchat Text is available under the Creative Commons Attribution-ShareAlike License ; additional terms may apply.
By using this site, you agree to the Terms of Use and Privacy Policy. Privacy policy About Wikipedia Disclaimers Contact Wikipedia Developers Cookie statement Mobile view. This section's use of external links may not follow Wikipedia's policies or guidelines. Please improve this article by removing excessive or inappropriate external links, and converting useful links where appropriate into footnote references.
September Learn how and when to remove this template message.