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Index Fever. Taxonomy of Indices Relationship Between Broad Market Indices. Broad ( US ) Equity Indices : DJIA, SP500,Value Line 1700, Russell 3000, Wilshire 5000 Market Indices : NYSE Composite, NASDAQ Comp., FT100, Nikkei 225 Technical Indicators : PREM, TICK, ARMS,

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Index fever l.jpg

Index Fever

Taxonomy of Indices

Relationship Between Broad Market Indices


Taxonomy of equity indices l.jpg

Broad (US)Equity Indices:

DJIA, SP500,Value Line 1700, Russell 3000, Wilshire 5000

Market Indices:

NYSE Composite, NASDAQ Comp., FT100, Nikkei 225

Technical Indicators:

PREM, TICK, ARMS,

Industry Indices:

SOX, MSH, BKX, DJTRAN, DJUTIL, XOI

Equity Market Sectors

size: small, “mid-cap”, large

value: growth, value

International (from US view)

developed markets: e.g. MSCI’s EAFE for Europe, Australia, Far East

“Emerging” Markets: less developed markets

ex: Barings Emerging Markets Index includes Korea and Taiwan

Equity Futures and Options Indices

MMI (XMI) & SP100 (OEX)

Taxonomy of Equity Indices



Some details about the russells l.jpg

Weights are “capitalization weights”: capitalization = price X number of shares

The Frank Russell Company takes all 6,000 traded stocks and ranks them by market cap.

Russell excludes cross-ownership in the evaluation of market cap. (In US about 5% of equity is double counted. One firm owning shares of another.)

Russell excludes ADR’s (these are not US equity)

The Russell 3000 is the top 3,000 stocks by market capitalization. Russell claims it represents 98% of investible US Equity market, or $13.2 trillion as of 6/99

The top 1,000 stocks in the Russell 3,000 are used for the Russell 1000

The next 2,000 stocks are used for the Russell 2,000

Russell 3000 (Total Cap = $13.2 Trillion)

avg. mkt cap = $4.4 billion

median mkt cap = 701.7 million

largest weight = 407.1bill/13.2 Trillion = .031

smallest weight = 178.2million/13.2Trill =.00001

Russell 1000 (Total Cap = $12.1 Trillion)

avg. mkt cap = $12.1 billion

median mkt cap = 3.8 billion

largest weight = 407.1bill/12.1 Trillion = .034

smallest weight = 1.4 billion/12.1Trillion =.00011

Russell 2000(Total Cap = $1.05Trillion)

avg. mkt cap = $ 526.4 million

median mkt cap = 178 million

largest weight = 1.4billion/1.05Trillion = .00129

smallest weight = 178million/1.05Trillion=.00017

Some Details about the Russells


Comparison of market values from june 1997 to june 1999 l.jpg
Comparison of Market Values from June 1997 to June 1999 price X number of shares

June 1997

  • Russell 3000: Total Cap = $8.4 trillion

    • avg. mkt cap = $2.8 billion

    • median mkt cap = 639 million

    • largest weight = 198bill/8.4 Trillion = .024

    • smallest weight = 172 million/8.4Trill =.00002

  • Russell 1000: Total Cap = $7.6 trillion

    • avg. mkt cap = $7.6 billion

    • median mkt cap = 3.0 billion

    • largest weight = 198bill/7.6 Trillion = .026

    • smallest weight = 1.1 billion/7.6Trillion =.00015

  • Russell 2000: Total Cap = $934 billion

    • avg. mkt cap = $ 467 million

    • median mkt cap = 395 million

    • largest weight = 1.1billion/934billion = .00118

    • smallest weight = 172 million/934billion =.00018

June 1998

$11.1 trillion

$3.7 billion

793.3 million

= 271.6bill/11.1 Trillion = .024

= 221.9million/11.1Trill =.00002

$9.9 trillion

$9.9 billion

3.7 billion

= 271.6bill/9.9 Trillion = .027

1.4 billion/9.9Trillion =.00014

$1.2Trillion

$ 592 million

395 million

= 1.4billion/1.2Trillion = .00116

= 221.9million/1.2Trillion=.00018

June 1999

$13.2 Trillion

$4.4 billion

701.7 million

= 407.1bill/13.2 Trillion = .031

= 178.2million/13.2Trill =.00001

$12.1 Trillion

$12.1 billion

3.8 billion

= 407.1bill/12.1 Trillion = .034

= 1.4 billion/12.1Trillion =.00011

$1.05Trillion

avg. mkt cap = $ 526.4 million

median mkt cap = 178 million

largest weight = 1.4billion/1.05Trillion = .00129

smallest weight = 178million/1.05Trillion=.00017


Total returns on broad market indices l.jpg
TOTAL RETURNS ON BROAD MARKET INDICES price X number of shares

  • Data:

    SP500 296 months: January 1975 to August 1999

    SP1500 105 months: December 1990 to August 1999

    Wishire5000 296 months: January 1975 to August 1999

    R1000 248 months: January 1979 to August 1999 R3000 248 months: January 1979 to August 1999

  • Correlation:

    SP500 SP1500 W5000 R1000 R3000

    SP500 1

    SP1500 .996 1

    W5000 .986 .995 1

    R1000 .996 .998 .998 1

    R3000 .992 .995 .995 .998 1


Regression results l.jpg
Regression Results price X number of shares

  • Using the data ending in August 1999:

    W5000 = -.00014 + 1.015 SP500 R2 = .976 n = 296

    (t = -.34) (t = 110.1)

    R1000 = -0.000279 + 1.007 SP500 R2 = .991 n = 248

    (t = -1.025) (t =167.6)

    R3000 = -0.000518 + 1.013 SP500 R2 = .983 n = 248

    (t = --1.35) (t = 111.6)

    SP1500= -.00010 + 1.0022 SP500 R2 = 0.992n = 105

    (t = -.28) (t = 111.8)


Our claim there is no difference in these indices l.jpg
Our Claim: There is no difference in these indices price X number of shares.

Prove us wrong! Suppose you are working for a money management firm that is not sure whether we are right. Your assignment is to investigate our claim and specifically answer the question: Can you use statistics to show that the indices are different?

Steps in the assignment

Step1:Download the spreadsheet MarketIndices.xls from the course website.

Step 2: There are monthly returns on the SP500, the Russell 1000 and the Russell 3000 from January 1979 to November 2000.

Step 3: Use alt-tools-data analysis- regression to run the regression of the broad market indices on each other. (If “data analysis” is not available, use alt-tools-add ins to add analysis tool pack and analysis tool pack VBA, to get the data analysis menu item on alt-tools)

Hint: The standard evaluation period in the money management business is 36 months ending on a quarter (March, June, Sept, Dec.). Examine sub-periods to determine if there is a difference.

Step 4: Email your spreadsheet to [email protected] . If your spreadsheet is too disorganized to read we will give it a low grade. If it has a virus attached, we’ll give it an “F” grade.


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