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Stock market index

In finance, a stock index, or stock market index, is an index that measures a stock market, or a subset of the stock market, that helps investors compare current price levels with past prices to calculate market performance. It is computed from the prices of selected stocks (typically a weighted arithmetic mean).

A comparison of three major U.S. stock indices: the NASDAQ Composite, Dow Jones Industrial Average, and S&P 500 Index. All three have the same height at March 2007. The NASDAQ spiked during the dot-com bubble in the late 1990s, a result of the large number of technology companies on that index.

Two of the primary criteria of an index are that it is investable and transparent: The methods of its construction are specified. Investors can invest in a stock market index by buying an index fund, which are structured as either a mutual fund or an exchange-traded fund, and "track" an index. The difference between an index fund's performance and the index, if any, is called tracking error. For a list of major stock market indices, see List of stock market indices.

Contents

Stock market indices could be segmented by their index weight methodology, or the rules on how stocks are allocated in the index, independent of its stock coverage. For example, the S&P 500 and the S&P 500 Equal Weight both covers the same group of stocks, but S&P 500 is weighted by market capitalization and S&P 500 Equal Weight is an equal weight index. Below is sample of common index weighting methods. In practice, many indices will impose constraints, such as concentration limits, on these rules.

Market-Capitalization Weighting based indices weight constituent stocks by its market capitalization (often shortened to "market-cap"), or its stock price by its number of shares outstanding, divided by the total market capitalization of all the constituents in the index. Under Capital Asset Pricing Model, the market-cap weighted market portfolio, which could be approximated with the market-cap weighted equity index portfolio, is mean-variance efficient, meaning that it produces the highest return for a given level of risk. Tracking portfolios of the market-cap weighted equity index could also be mean-variance efficient under the right assumptions, and they could be attractive investment portfolios. A market-cap weighted index can also be thought of as a liquidity-weighted index since the largest-cap stocks tend to have the highest liquidity and the greatest capacity to handle investor flows; portfolios with such stocks could have very high investment capacity.

Free-float adjusted Market-Capitalization Weighting based indices adjust market-cap index weights by each constituent's shares outstanding for closely or strategically held shares that are not generally available to the public market. Such shares may be held by governments, affiliated companies, founders, and employees. Foreign ownership limits imposed by government regulation could also be subject to free-float adjustments. These adjustments inform investors of potential liquidity issues from these holdings that are not apparent from the raw number of a stock's shares outstanding. Free-float adjustments are complex undertakings, and different index providers have different free-float adjustment methods, which could sometimes produce different results.: 1264

Price Weighting based indices weight constituent stocks by its price per share divided by the sum of all share prices in the index. A price-weighted index can be thought of as a portfolio with one share of each constituent stock. However, a stock split for any constituent stock of the index would cause the weight in the index of the stock that split to decrease, even in the absence of any meaningful change in the fundamentals of that stock. This feature makes price-weighted indices unattractive as benchmarks for passive investment strategies and portfolio managers. Nonetheless, many price-weighted indices, such as the Dow Jones Industrial Average and the Nikkei 225, are followed widely as visible indicators of day-to-day market movements.

Equal Weighting based indices give each constituent stocks weights of 1/n, where n represents the number of stocks in the index. This method produces the least-concentrated portfolios. Equal weighting of stocks in an index is considered a naive strategy because it does not show preference towards any single stock. Zeng and Luo (2013) notes that broad market equally weighted indices are factor-indifferent and randomizes factor mispricing. Equal weight stock indices tends to overweight small-cap stocks and to underweight large-cap stocks compared to a market-cap weighted index. These biases tend to give equal weight stock indices higher volatility and lower liquidity than market-cap weight indices. For example, the Barron's 400 Index assigns an equal value of 0.25% to each of the 400 stocks included in the index, which together add up to the 100% whole.

Fundamental Factor Weighting based indices, or Fundamentally based indexes, weight constituent stocks based on stock fundamental factors rather stock financial market data. Fundamental factors could include sales, income, dividends, and other factors analyzed in fundamental analysis. Similar to fundamental analysis, fundamental weighting assumes that stock market prices will converge to an intrinsic price implied by fundamental attributes. Certain fundamental factors are also used in generic factor weighting indices.

Factor Weighting based indices weight constituent stocks based on market risk factors of stocks as measured in the context of factor models, such as the Fama–French three-factor model. These indices Common factors include Growth, Value, Size, Yield, Momentum, Quality, and Volatility. Passive factor investing strategies are sometimes known as "smart beta" strategies. Investors could use factor investment strategies or portfolios to complement a market-cap weighted indexed portfolio by tilting or changing their portfolio exposure to certain factors.

Volatility Weighting based indices weight constituent stocks by the inverse of their relative price volatility. Price volatility is defined differently by each index provider, but two common methods include the standard deviation of the past 252 trading days (approximately one calendar year), and the weekly standard deviation of price returns for the past 156 weeks (approximately three calendar years).

Minimum Variance Weighting based indices weight constituent stocks using a mean-variance optimization process. In a volatility weighted indices, highly volatile stocks are given less weight in the index, while in a minimum variance weighting index, highly volatile stocks that are negatively correlated with the rest of the index can be given relatively larger weights than they would be given in the volatility weighted index.

Stock market indices may be classified and segmented by the index coverage set of stocks. The coverage of an index is the underlying group of stocks, typically grouped together with some rationale from their underlying economics or underlying investor demand, that the index is trying to represent or track. For example, a 'world' or 'global' stock market index — such as the MSCI World or the S&P Global 100 — includes stocks from all over the world, and satisfies investor demand for an index for broad global stocks. Regional indices that make up the MSCI World index, such as the MSCI Emerging Markets index, includes stocks from countries with a similar level of economic development, which satisfies the investor demand for an index for emerging market stocks that may face similar economic fundamentals. The coverage of a stock market index is independent from the weighting method. For example, the S&P 500 market-cap weighted index covers the 500 largest stocks from the S&P Total Market Index, but an equally weighted S&P 500 index is also available with the same coverage.

Country Coverage indices represents the performance of the stock market of a given nation—and by proxy, reflects investor sentiment on the state of its economy. The most regularly quoted market indices are national indices composed of the stocks of large companies listed on a nation's largest stock exchanges, such as the S&P 500 Index in the United States, the Nikkei 225 in Japan, the DAX in Germany, the NIFTY 50 in India, and the FTSE 100 in the United Kingdom.

Regional Coverage indices represents the performance of the stock market of a given geographical region. Some examples of these indices are the FTSE Developed Europe Index, and the FTSE Developed Asia Pacific Index.

Global Coverage indices represents the performance of the global stock market. The FTSE Global Equity Index Series includes over 16,000 companies.

Exchange-based Coverage indices may be based on exchange, such as the NASDAQ-100 or groups of exchanges, such as the Euronext 100 or OMX Nordic 40.

Sector-based coverage indices track the performance of specific sectors of the market. Some examples include the Wilshire US REIT Index which tracks more than 80 real estate investment trusts and the NASDAQ Biotechnology Index which consists of approximately 200 firms in the biotechnology industry.

Other indices may track companies of a certain size, a certain type of management, or more specialized criteria such as in fundamentally based indexes.

Some indices, such as the S&P 500 Index, have returns shown calculated with different methods. These versions can differ based on how the index components are weighted and on how dividends are accounted. For example, there are three versions of the S&P 500 Index: price return, which only considers the price of the components, total return, which accounts for dividend reinvestment, and net total return, which accounts for dividend reinvestment after the deduction of a withholding tax.

The Wilshire 4500 and Wilshire 5000 indices have five versions each: full capitalization total return, full capitalization price, float-adjusted total return, float-adjusted price, and equal weight. The difference between the full capitalization, float-adjusted, and equal weight versions is in how index components are weighted.

Criticism of capitalization-weighting

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 entire 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.[citation needed] This can be explained by the fact that these indices do not include all assets or by the fact that the theory does not hold. 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.g. Haugen and Baker 1991, Amenc, Goltz, and Le Sourd 2006, or Hsu 2006), pointing out that the mechanics of capitalization-weighting lead to trend following strategies that provide an inefficient risk-return trade-off.

Passive management is an investing strategy involving investing in index funds, which are structured as mutual funds or exchange-traded funds that track market indices. The SPIVA (S&P Indices vs. Active) annual "U.S. Scorecard", which measures the performance of indices versus actively managed mutual funds, finds the vast majority of active management mutual funds underperform their benchmarks, such as the S&P 500 Index, after fees. Since index funds attempt to replicate the holdings of an index, 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 can result in transaction costs and capital gains taxes).

Unlike a mutual fund, which is priced daily, an exchange-traded fund is priced continuously, is optionable, and can be sold short.

Several indices are based on ethical investing, and include only companies that meet certain ecological or social criteria, such as the Calvert Social Index, Domini 400 Social Index, FTSE4Good Index, Dow Jones Sustainability Index, STOXX Global ESG Leaders Index, several Standard Ethics Aei indices, and the Wilderhill Clean Energy Index. Other ethical stock market indices may be based on diversity weighting (Fernholz, Garvy, and Hannon 1998). In 2010, the Organisation of Islamic Cooperation announced the initiation of a stock index that complies with Sharia's ban on alcohol, tobacco and gambling.

Critics of such initiatives argue that many firms satisfy mechanical "ethical criteria", e.g. regarding board composition or hiring practices, but fail to perform ethically with respect to shareholders, e.g. Enron. 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 reputation damage from incidents (oil spillages, industrial tribunals, etc.) and this might result in lower share price volatility. The empirical evidence on the performance of ethical funds and of ethical firms versus their mainstream comparators is very mixed for both stock and debt markets.

  1. Caplinger, Dan (January 18, 2020). "What Is a Stock Market Index?". The Motley Fool.
  2. Lo, Andrew W. (2016). "What Is an Index?". Journal of Portfolio Management. 42 (2): 21–36. doi:10.3905/jpm.2016.42.2.021. hdl:1721.1/109050.
  3. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, p. 14
  4. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, p. 7
  5. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, p. 7
  6. Hirst, Scott; Kastiel, Kobi (2019-05-01). "Corporate Governance by Index Exclusion". Boston University Law Review. 99 (3): 1229.
  7. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, p. 7
  8. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, pp. 7–8
  9. Edwards, Tim; Lazzara, Craig J. (May 2014). "Equal-Weight Benchmarking: Raising the Monkey Bars"(PDF). S&P Global.
  10. "Practice Essentials - Equal Weight Indexing"(PDF). S&P Dow Jones Indices.
  11. Fabian, David (November 14, 2014). "Checking In On Equal-Weight ETFs This Year". Benzinga.
  12. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, p. 8
  13. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, pp. 11–13
  14. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, p. 14
  15. Smith, David M.; Yousif, Kevin K., Passive Equity Investing, CFA Institute, p. 14
  16. "FTSE Global Equity Index Series (GEIS)". FTSE Russell.
  17. "Index Literacy". S&P Dow Jones Indices.
  18. "Methodology Matters". S&P Dow Jones Indices.
  19. "Indexes". Wilshire Associates.
  20. "Dow Jones Wilshire > DJ Wilshire 5000/4500 Indexes > Methodology". Wilshire Associates.
  21. Sharpe, William F. (May 2010). "Adaptive Asset Allocation Policies". CFA Institute.
  22. Schramm, Michael (September 27, 2019). "What Is Passive Investing?". Morningstar, Inc.
  23. "SPIVA U.S. Score Card". S&P Dow Jones Indices.
  24. THUNE, KENT (July 3, 2019). "Why Index Funds Beat Actively Managed Funds". Dotdash.
  25. Chang, Ellen (May 21, 2019). "How to Choose Between ETFs and Mutual Funds". U.S. News & World Report.
  26. Divine, John (February 15, 2019). "7 of the Best Socially Responsible Funds". U.S. News & World Report.
  27. Haris, Anwar (November 25, 2010). "Muslim-Majority Nations Plan Stock Index to Spur Trade: Islamic Finance". Bloomberg L.P.
  28. Oikonomou, Ioannis; Brooks, Chris; Pavelin, Stephen (2012). "The impact of corporate social performance on financial risk and utility: a longitudinal analysis"(PDF). Financial Management. 41 (2): 483–515. doi:10.1111/j.1755-053X.2012.01190.x. ISSN 1755-053X.
  29. Brammer, Stephen; Brooks, Chris; Pavelin, Stephen (2009). "The stock performance of America's 100 best corporate citizens"(PDF). The Quarterly Review of Economics and Finance. 49 (3): 1065–1080. doi:10.1016/j.qref.2009.04.001. ISSN 1062-9769.
  30. Brammer, Stephen; Brooks, Chris; Pavelin, Stephen (2006). "Corporate social performance and stock returns: UK evidence from disaggregate measures"(PDF). Financial Management. 35 (3): 97–116. doi:10.1111/j.1755-053X.2006.tb00149.x. ISSN 1755-053X.
  31. Oikonomou, Ioannis; Brooks, Chris; Pavelin, Stephen (2014). "The effects of corporate social performance on the cost of corporate debt and credit ratings"(PDF). Financial Review. 49 (1): 49–75. doi:10.1111/fire.12025. ISSN 1540-6288.

Media related to Stock market indexes at Wikimedia Commons

Stock market index
Stock market index Language Watch Edit In finance a stock index or stock market index is an index that measures a stock market or a subset of the stock market that helps investors compare current price levels with past prices to calculate market performance 1 It is computed from the prices of selected stocks typically a weighted arithmetic mean A comparison of three major U S stock indices the NASDAQ Composite Dow Jones Industrial Average and S amp P 500 Index All three have the same height at March 2007 The NASDAQ spiked during the dot com bubble in the late 1990s a result of the large number of technology companies on that index Two of the primary criteria of an index are that it is investable and transparent 2 The methods of its construction are specified Investors can invest in a stock market index by buying an index fund which are structured as either a mutual fund or an exchange traded fund and track an index The difference between an index fund s performance and the index if any is called tracking error For a list of major stock market indices see List of stock market indices Contents 1 Types of indices by weighting method 2 Types of indices by coverage 3 Presentation of index returns 3 1 Criticism of capitalization weighting 4 Indices and passive investment management 5 Ethical stock market indices 6 See also 7 References 8 External linksTypes of indices by weighting method EditStock market indices could be segmented by their index weight methodology or the rules on how stocks are allocated in the index independent of its stock coverage For example the S amp P 500 and the S amp P 500 Equal Weight both covers the same group of stocks but S amp P 500 is weighted by market capitalization and S amp P 500 Equal Weight is an equal weight index Below is sample of common index weighting methods In practice many indices will impose constraints such as concentration limits on these rules 3 Market Capitalization Weighting based indices weight constituent stocks by its market capitalization often shortened to market cap or its stock price by its number of shares outstanding divided by the total market capitalization of all the constituents in the index Under Capital Asset Pricing Model the market cap weighted market portfolio which could be approximated with the market cap weighted equity index portfolio is mean variance efficient meaning that it produces the highest return for a given level of risk Tracking portfolios of the market cap weighted equity index could also be mean variance efficient under the right assumptions and they could be attractive investment portfolios A market cap weighted index can also be thought of as a liquidity weighted index since the largest cap stocks tend to have the highest liquidity and the greatest capacity to handle investor flows portfolios with such stocks could have very high investment capacity 4 Free float adjusted Market Capitalization Weighting based indices adjust market cap index weights by each constituent s shares outstanding for closely or strategically held shares that are not generally available to the public market Such shares may be held by governments affiliated companies founders and employees Foreign ownership limits imposed by government regulation could also be subject to free float adjustments These adjustments inform investors of potential liquidity issues from these holdings that are not apparent from the raw number of a stock s shares outstanding Free float adjustments are complex undertakings and different index providers have different free float adjustment methods which could sometimes produce different results 5 6 1264 Price Weighting based indices weight constituent stocks by its price per share divided by the sum of all share prices in the index A price weighted index can be thought of as a portfolio with one share of each constituent stock However a stock split for any constituent stock of the index would cause the weight in the index of the stock that split to decrease even in the absence of any meaningful change in the fundamentals of that stock This feature makes price weighted indices unattractive as benchmarks for passive investment strategies and portfolio managers Nonetheless many price weighted indices such as the Dow Jones Industrial Average and the Nikkei 225 are followed widely as visible indicators of day to day market movements 7 Equal Weighting based indices give each constituent stocks weights of 1 n where n represents the number of stocks in the index This method produces the least concentrated portfolios Equal weighting of stocks in an index is considered a naive strategy because it does not show preference towards any single stock Zeng and Luo 2013 notes that broad market equally weighted indices are factor indifferent and randomizes factor mispricing Equal weight stock indices tends to overweight small cap stocks and to underweight large cap stocks compared to a market cap weighted index These biases tend to give equal weight stock indices higher volatility and lower liquidity than market cap weight indices 8 9 10 For example the Barron s 400 Index assigns an equal value of 0 25 to each of the 400 stocks included in the index which together add up to the 100 whole 11 Fundamental Factor Weighting based indices or Fundamentally based indexes weight constituent stocks based on stock fundamental factors rather stock financial market data Fundamental factors could include sales income dividends and other factors analyzed in fundamental analysis Similar to fundamental analysis fundamental weighting assumes that stock market prices will converge to an intrinsic price implied by fundamental attributes Certain fundamental factors are also used in generic factor weighting indices 12 Factor Weighting based indices weight constituent stocks based on market risk factors of stocks as measured in the context of factor models such as the Fama French three factor model These indices Common factors include Growth Value Size Yield Momentum Quality and Volatility Passive factor investing strategies are sometimes known as smart beta strategies Investors could use factor investment strategies or portfolios to complement a market cap weighted indexed portfolio by tilting or changing their portfolio exposure to certain factors 13 Volatility Weighting based indices weight constituent stocks by the inverse of their relative price volatility Price volatility is defined differently by each index provider but two common methods include the standard deviation of the past 252 trading days approximately one calendar year and the weekly standard deviation of price returns for the past 156 weeks approximately three calendar years 14 Minimum Variance Weighting based indices weight constituent stocks using a mean variance optimization process In a volatility weighted indices highly volatile stocks are given less weight in the index while in a minimum variance weighting index highly volatile stocks that are negatively correlated with the rest of the index can be given relatively larger weights than they would be given in the volatility weighted index 15 Types of indices by coverage EditStock market indices may be classified and segmented by the index coverage set of stocks The coverage of an index is the underlying group of stocks typically grouped together with some rationale from their underlying economics or underlying investor demand that the index is trying to represent or track For example a world or global stock market index such as the MSCI World or the S amp P Global 100 includes stocks from all over the world and satisfies investor demand for an index for broad global stocks Regional indices that make up the MSCI World index such as the MSCI Emerging Markets index includes stocks from countries with a similar level of economic development which satisfies the investor demand for an index for emerging market stocks that may face similar economic fundamentals The coverage of a stock market index is independent from the weighting method For example the S amp P 500 market cap weighted index covers the 500 largest stocks from the S amp P Total Market Index but an equally weighted S amp P 500 index is also available with the same coverage Country Coverage indices represents the performance of the stock market of a given nation and by proxy reflects investor sentiment on the state of its economy The most regularly quoted market indices are national indices composed of the stocks of large companies listed on a nation s largest stock exchanges such as the S amp P 500 Index in the United States the Nikkei 225 in Japan the DAX in Germany the NIFTY 50 in India and the FTSE 100 in the United Kingdom Regional Coverage indices represents the performance of the stock market of a given geographical region Some examples of these indices are the FTSE Developed Europe Index and the FTSE Developed Asia Pacific Index Global Coverage indices represents the performance of the global stock market The FTSE Global Equity Index Series includes over 16 000 companies 16 Exchange based Coverage indices may be based on exchange such as the NASDAQ 100 or groups of exchanges such as the Euronext 100 or OMX Nordic 40 Sector based coverage indices track the performance of specific sectors of the market Some examples include the Wilshire US REIT Index which tracks more than 80 real estate investment trusts and the NASDAQ Biotechnology Index which consists of approximately 200 firms in the biotechnology industry Other indices may track companies of a certain size a certain type of management or more specialized criteria such as in fundamentally based indexes Presentation of index returns EditSome indices such as the S amp P 500 Index have returns shown calculated with different methods 17 These versions can differ based on how the index components are weighted and on how dividends are accounted For example there are three versions of the S amp P 500 Index price return which only considers the price of the components total return which accounts for dividend reinvestment and net total return which accounts for dividend reinvestment after the deduction of a withholding tax 18 The Wilshire 4500 and Wilshire 5000 indices have five versions each full capitalization total return full capitalization price float adjusted total return float adjusted price and equal weight The difference between the full capitalization float adjusted and equal weight versions is in how index components are weighted 19 20 Criticism of capitalization weighting Edit 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 21 Investors use theories such as modern portfolio theory to determine allocations This considers risk and return and does not consider weights relative to the entire 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 citation needed This can be explained by the fact that these indices do not include all assets or by the fact that the theory does not hold 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 g Haugen and Baker 1991 Amenc Goltz and Le Sourd 2006 or Hsu 2006 pointing out that the mechanics of capitalization weighting lead to trend following strategies that provide an inefficient risk return trade off Indices and passive investment management EditPassive management is an investing strategy involving investing in index funds which are structured as mutual funds or exchange traded funds that track market indices 22 The SPIVA S amp P Indices vs Active annual U S Scorecard which measures the performance of indices versus actively managed mutual funds finds the vast majority of active management mutual funds underperform their benchmarks such as the S amp P 500 Index after fees 23 24 Since index funds attempt to replicate the holdings of an index 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 can result in transaction costs and capital gains taxes Unlike a mutual fund which is priced daily an exchange traded fund is priced continuously is optionable and can be sold short 25 Ethical stock market indices EditSeveral indices are based on ethical investing and include only companies that meet certain ecological or social criteria such as the Calvert Social Index Domini 400 Social Index FTSE4Good Index Dow Jones Sustainability Index STOXX Global ESG Leaders Index several Standard Ethics Aei indices and the Wilderhill Clean Energy Index 26 Other ethical stock market indices may be based on diversity weighting Fernholz Garvy and Hannon 1998 In 2010 the Organisation of Islamic Cooperation announced the initiation of a stock index that complies with Sharia s ban on alcohol tobacco and gambling 27 Critics of such initiatives argue that many firms satisfy mechanical ethical criteria e g regarding board composition or hiring practices but fail to perform ethically with respect to shareholders e g Enron 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 reputation damage from incidents oil spillages industrial tribunals etc and this might result in lower share price volatility 28 The empirical evidence on the performance of ethical funds and of ethical firms versus their mainstream comparators is very mixed for both stock 29 30 and debt markets 31 See also EditIndex of accounting articles Index of economics articles Index of management articles List of stock exchanges List of stock market indices Outline of accounting Outline of marketingReferences Edit Caplinger Dan January 18 2020 What Is a Stock Market Index The Motley Fool Lo Andrew W 2016 What Is an Index Journal of Portfolio Management 42 2 21 36 doi 10 3905 jpm 2016 42 2 021 hdl 1721 1 109050 Smith David M Yousif Kevin K Passive Equity Investing CFA Institute p 14 Smith David M Yousif Kevin K Passive Equity Investing CFA Institute p 7 Smith David M Yousif Kevin K Passive Equity Investing CFA Institute p 7 Hirst Scott Kastiel Kobi 2019 05 01 Corporate Governance by Index Exclusion Boston University Law Review 99 3 1229 Smith David M Yousif Kevin K Passive Equity Investing CFA Institute p 7 Smith David M Yousif Kevin K Passive Equity Investing CFA Institute pp 7 8 Edwards Tim Lazzara Craig J May 2014 Equal Weight Benchmarking Raising the Monkey Bars PDF S amp P Global Practice Essentials Equal Weight Indexing PDF S amp P Dow Jones Indices Fabian David November 14 2014 Checking In On Equal Weight ETFs This Year Benzinga Smith David M Yousif Kevin K Passive Equity Investing CFA Institute p 8 Smith David M Yousif Kevin K Passive Equity Investing CFA Institute pp 11 13 Smith David M Yousif Kevin K Passive Equity Investing CFA Institute p 14 Smith David M Yousif Kevin K Passive Equity Investing CFA Institute p 14 FTSE Global Equity Index Series GEIS FTSE Russell Index Literacy S amp P Dow Jones Indices Methodology Matters S amp P Dow Jones Indices Indexes Wilshire Associates Dow Jones Wilshire gt DJ Wilshire 5000 4500 Indexes gt Methodology Wilshire Associates Sharpe William F May 2010 Adaptive Asset Allocation Policies CFA Institute Schramm Michael September 27 2019 What Is Passive Investing Morningstar Inc SPIVA U S Score Card S amp P Dow Jones Indices THUNE KENT July 3 2019 Why Index Funds Beat Actively Managed Funds Dotdash Chang Ellen May 21 2019 How to Choose Between ETFs and Mutual Funds U S News amp World Report Divine John February 15 2019 7 of the Best Socially Responsible Funds U S News amp World Report Haris Anwar November 25 2010 Muslim Majority Nations Plan Stock Index to Spur Trade Islamic Finance Bloomberg L P Oikonomou Ioannis Brooks Chris Pavelin Stephen 2012 The impact of corporate social performance on financial risk and utility a longitudinal analysis PDF Financial Management 41 2 483 515 doi 10 1111 j 1755 053X 2012 01190 x ISSN 1755 053X Brammer Stephen Brooks Chris Pavelin Stephen 2009 The stock performance of America s 100 best corporate citizens PDF The Quarterly Review of Economics and Finance 49 3 1065 1080 doi 10 1016 j qref 2009 04 001 ISSN 1062 9769 Brammer Stephen Brooks Chris Pavelin Stephen 2006 Corporate social performance and stock returns UK evidence from disaggregate measures PDF Financial Management 35 3 97 116 doi 10 1111 j 1755 053X 2006 tb00149 x ISSN 1755 053X Oikonomou Ioannis Brooks Chris Pavelin Stephen 2014 The effects of corporate social performance on the cost of corporate debt and credit ratings PDF Financial Review 49 1 49 75 doi 10 1111 fire 12025 ISSN 1540 6288 Amenc N Goltz F Le Sourd V 2006 Assessing the Quality of Stock Market Indices EDHEC Publication Arnott R D Hsu J Moore P 2005 Fundamental Indexation Financial Analysts Journal 60 2 83 99 CiteSeerX 10 1 1 612 1314 doi 10 2469 faj v61 n2 2718 JSTOR 4480658 Broby D P 2007 A Guide to Equity Index Construction Risk Books Fernholz R Garvy R Hannon J 1998 Diversity Weighted Indexing Journal of Portfolio Management 24 2 74 82 doi 10 3905 jpm 24 2 74 Haugen R A Baker N L 1991 The Efficient Market Inefficiency of Capitalization Weighted Stock Portfolios Journal of Portfolio Management 17 3 35 40 doi 10 3905 jpm 1991 409335 Hsu Jason 2006 Cap Weighted Portfolios are Sub optimal Portfolios Journal of Investment Management 4 3 1 10 Archived from the original on 2012 04 25 Retrieved 2011 10 23 External links Edit Media related to Stock market indexes at Wikimedia Commons Stock Index Profile at Wikinvest Retrieved from 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