Construction The fixed-income universe includes securities issued by governments, government agencies, and corporations. Each of these entities may issue a variety of fixed-income securities with different characteristics. As a result, the number of fixed-income securities is many times larger than the number of equity securities. To represent a specific fixed-income market or segment, indexes may…
DetailsBroad Market Indexes A broad equity market index, as its name suggests, represents an entire given equity market and typically includes securities representing more than 90 percent of the selected market. Multi-Market Indexes Multi-market indexes usually comprise indexes from different countries and regions and are designed to represent multiple security markets. Multi-market indexes may represent…
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Some of the major uses of indexes include: Gauges of Market Sentiment The original purpose of stock market indexes was to provide a gauge of investor confidence or market sentiment. As indicators of the collective opinion of market participants, indexes reflect investor attitudes and behaviour. Proxies for Measuring and Modelling Returns, Systematic Risk, and Risk-Adjusted…
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Rebalancing Rebalancing refers to adjusting the weights of the constituent securities in the index. To maintain the weight of each security consistent with the index’s weighting method, the index provider rebalances the index by adjusting the weights of the constituent securities on a regularly scheduled basis (rebalancing dates)—usually quarterly. Rebalancing is necessary because the weights…
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Constructing and managing a security market index is similar to constructing and managing a portfolio of securities. Index providers must decide the following: Target Market and Security Selection The first decision in index construction is identifying the target market, market segment, or asset class that the index is intended to represent. The target market may…
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A security market index represents a given security market, market segment, or asset class. Most indexes are constructed as portfolios of marketable securities. The value of an index is calculated on a regular basis using either the actual or estimated market prices of the individual securities, known as constituent securities, with the index. For each…
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The objectives of market regulation are to:
The financial system allows traders to solve financing and risk management problems. In a well-functioning financial system: If the assets or contracts needed to solve these problems are available to trade, the financial system has complete markets. If the costs of arranging these trades are low, the financial system is operationally efficient. If the prices of the…
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Trading Sessions Markets are organised as call markets or as continuous trading markets. In a call market, trades can be arranged only when the market is called at a particular time and place. In contrast in a continuous trading market, trades can be arranged and executed anytime the market is open. Execution Mechanisms The three main types…
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When issuers first sell their securities to investors, practitioners say that the trades take place in the primary markets. An issuer makes an initial public offering (IPO)—sometimes called a placing—of a security issue when it sells the security to the public for the first time. A seasoned security is a security that an issuer has already issued. If…
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