Importance of Indices

dessubodh By dessubodh, 23rd Jan 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/2gk3z-ib/
Posted in Wikinut>Business>Analysis

What should a stock market Index Be and what do the Ups And Downs of an Index mean. Some basic idea about Index and its importance.

Why are Indices Important ?

Traditionally, indices have been used as information sources. By looking at an index we know how the market is moving. This information aspect also figures in myriad applications of stock market indices in economic research. This is particularly valuable when an index reflects highly up-to-date information and the portfolio of an investor contains illiquid securities in this case, the index is a lead indicator of how the overall portfolio will fare.
In recent years, indices have come to the fore owing to direct applications in finance, in the form of index funds and index derivatives. Index funds are funds which passively invest int the index,. Index derivatives allow people to cheaply alter their risk exposure to an index called hedging and to implement forecasts about the index movements called speculation.
Hedging using index derivatives has become a central part of risk management in the economy. These applications are now a multi-trillion dollar industry worldwide, and they are critically linked up to market indices. These indices serve as a benchmark for measuring the performance of fund managers. An all-equity fund should obtain returns like the overall stock market index. A proportionate debt : equity fund should obtain returns close to those obtained by an investment of 50% in the index and 50% in fixed income. A well specified relationship between an investor and a fund manager should explicitly define the benchmark against which the fund manager will be compared and in what fashion.
The most important type of market index is the broad market index, consisting of the large stocks of the country. In most countries, a single major index donates bench-marking, index funds, index derivatives and research applications. They reflect the changing expectations of the stock market about future corporate sectors.

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Index, Invest, Investigate, Investigation, Investing, Investment, Investment Advisor, Investment Decisions, Investment Manager, Investment Objectives, Investment Opportunities, Investment Strategy, Investment Tips, Investments, Investor, Investors, Trading

Meet the author

author avatar dessubodh
I worked with an Manufacturing company for 15 years and now i am a full time trader . I like writing articles on different subjects and interact with people

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Comments

author avatar SilentPsycho
23rd Jan 2014 (#)

Can you please simplify this stuff? I am a total noob in stocks and market section. It would be nice if you write a small page on basic stock market concepts and how and why it works. Thanks for info.

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author avatar dessubodh
23rd Jan 2014 (#)

Thanks for commenting, and taking interest on my article. I will write a simple article as you wish

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