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Definition of IndexIndexA series of numbers measuring percentage changes over time from a base period. The index number for the base period is by convention set equal to 100. indexAn index is a statistical measure of a market based on the performance of a sample of securities in that market. For example, the S&P/TSX Composite index reflects the performance of the most actively traded stocks on The Toronto Stock Exchange.
Related Terms:Arms indexAlso known as a trading index (TRIN)= (number of advancing issues)/ (number of declining Bond indexingDesigning a portfolio so that its performance will match the performance of some bond index. Buying the indexPurchasing the stocks in the S&P 500 in the same proportion as the index to achieve the Consumer Price Index (CPI)The CPI, as it is called, measures the prices of consumer goods and services and is a Consumer Price Index (CPI)An index calculated by tracking the cost of a typical bundle of consumer goods and services over time. It is commonly used to measure inflation. EAFE indexThe European, Australian, and Far East stock index, computed by Morgan Stanley. Enhanced indexingAlso called indexing plus, an indexing strategy whose objective is to exceed or replicate Index and Option Market (IOM)A division of the CME established in 1982 for trading stock index Index arbitrageAn investment/trading strategy that exploits divergences between actual and theoretical Index fundInvestment fund designed to match the returns on a stockmarket index. index fundsMutual funds that aim to track the performance of a specific stock or bond index. This process is also referred to as indexing and passive management. Index modelA model of stock returns using a market index such as the S&P 500 to represent common or Index optionA call or put option based on a stock market index. Index Portfolio Rebalancing Service (IPRS)index Portfolio Rebalancing Service (IPRS) is a comprehensive investment service that can help increase potential returns while reducing volatility. Several portfolios are available, each with its own strategic balance of index Funds. IPRS maintains your personal asset allocation by monitoring and rebalancing your portfolio semi-annually. Index warrantA stock index option issued by either a corporate or sovereign entity as part of a security IndexationThe adjustment of benefits to compensate for the effects of inflation. Indexed bondBond whose payments are linked to an index, e.g. the consumer price index. IndexingA passive instrument strategy consisting of the construction of a portfolio of stocks designed to Jensen indexAn index that uses the capital asset pricing model to determine whether a money manager market indexMeasure of the investment performance of the overall market. Market value-weighted indexAn index of a group of securities computed by calculating a weighted average Optimization approach to indexingAn approach to indexing which seeks to Optimize some objective, such present value indexsee profitability index Price IndexA measure of the price level calculated by comparing the cost of a bundle of goods and services in a given year with its cost in a base year. See also index. Profitability indexThe present value of the future cash flows divided by the initial investment. Also called Profitability indexSee cash value added. Profitability IndexA method for determining the profitability of an investment. It is profitability indexRatio of net present value to initial investment. profitability index (Pl)a ratio that compares the present value of net cash flows to the present value of the net investment Pure index fundA portfolio that is managed so as to perfectly replicate the performance of the market portfolio. Risk indexesCategories of risk used to calculate fundamental beta, including (1) market variability, (2) Single index modelA model of stock returns that decomposes influences on returns into a systematic factor, Single-index modelRelated: market model Standard & Poor’s Composite Indexindex of the investment performance of a portfolio of 500 large stocks. Also called the Stock index optionAn option in which the underlying is a common stock index. Stratified equity indexingA method of constructing a replicating portfolio in which the stocks in the index Stratified sampling approach to indexingAn approach in which the index is divided into cells, each Stratified sampling bond indexingA method of bond indexing that divides the index into cells, each cell Strike indexFor a stock index option, the index value at which the buyer of the option can buy or sell the Treynor IndexA measure of the excess return per unit of risk, where excess return is defined as the AlphaA measure of selection risk (also known as residual risk) of a mutual fund in relation to the market. A ARMAdjustable rate mortgage. A mortgage that features predetermined adjustments of the loan interest rate Base YearThe reference year when constructing a price index. By tradition it is given the value 100. BenchmarkThe performance of a predetermined set of securities, for comparison purposes. Such sets may be BetaThe price volatility of a financial instrument relative to the price Beta equation (Mutual Funds)The beta of a fund is determined as follows: Beta equation (Stocks)The beta of a stock is determined as follows: Beta (Mutual Funds)The measure of a fund's or stocks risk in relation to the market. A beta of 0.7 means Bull CD, Bear CDA bull CD pays its holder a specified percentage of the increase in return on a specified Capitalization methodA method of constructing a replicating portfolio in which the manager purchases a Cash settlement contractsFutures contracts, such as stock index futures, that settle for cash, not involving Constant dollar accountingA method for restating financial statements by reducing or Cost-benefit ratioThe net present value of an investment divided by the investment's initial cost. Also called DeflatorA price index used to deflate a nominal value to a real value by dividing the nominal value by the price deflator. Difference from S&PA mutual fund's return minus the change in the Standard & Poors 500 index for the Dow Jones industrial averageThis is the best known U.S.index of stocks. It contains 30 stocks that trade on Dow Jones Industrial Averageindex of the investment performance of a portfolio of 30 “blue-chip” stocks. Equity swapA swap in which the cash flows that are exchanged are based on the total return on some stock Escalating Price OptionA nonqualified stock option that uses a sliding scale for European Currency Unit (ECU)An index of foreign exchange consisting of about 10 European currencies, Expected returnThe return expected on a risky asset based on a probability distribution for the possible rates Fundamental descriptorsIn the model for calculating fundamental beta, ratios in risk indexes other than Futures contract multipleA constant, set by an exchange, which when multiplied by the futures price gives GDP DeflatorPrice index used to deflate nominal GDP to real GDP by dividing nominal GDP by the GDP deflator. Market modelThis relationship is sometimes called the single-index model. The market model says that the market portfolioPortfolio of all assets in the economy. In practice a broad stock market index, such as the Standard & Poor's Composite, is used to represent the market. Mutual fund theoremA result associated with the CAPM, asserting that investors will choose to invest their Options contract multipleA constant, set at $100, which when multiplied by the cash index value gives the Passive investment managementBuying a well-diversified portfolio to represent a broad-based market Passive portfolioA market index portfolio. Passive portfolio strategyA strategy that involves minimal expectational input, and instead relies on Price LevelA weighted average of prices of all goods and services where the weights are given by total spending on each good or service. Measured by a price index. Real GDPGDP expressed in base-year dollars, calculated by dividing nominal GDP by a price index. Real IncomeIncome expressed in base-year dollars, calculated by dividing nominal income by a price index. Real Money SupplyMoney supply expressed in base-year dollars, calculated by dividing the money supply by a price index. Real WageWage expressed in base-year dollars, calculated by dividing the money wage by a price index. Relative strengthA stock's price movement over the past year as compared to a market index (the S&P 500). Replicating portfolioA portfolio constructed to match an index or benchmark. Residuals1) Parts of stock returns not explained by the explanatory variable (the market-index return). They S&PAbbreviation for Standard & Poor’s stockmarket index. Sharpe benchmarkA statistically created benchmark that adjusts for a managers' index-like tendencies. Sharpe ratioA measure of a portfolio's excess return relative to the total variability of the portfolio. Related: Terms of TradeThe quantity of imports that can be obtained for a unit of exports, measured by the ratio of an export price index to an import price index. Tilted portfolioAn indexing strategy that is linked to active management through the emphasis of a Tracking errorIn an indexing strategy, the difference between the performance of the benchmark and the Triple witching hourThe four times a year that the S&P futures contract expires at the same time as the S&P Variance minimization approach to trackingAn approach to bond indexing that uses historical data to
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