Read the index and its meaning in one article

Overview Overview

Multiple circuit breakers have made the market panic, and panic controls investors' trading behavior. The index generally represents the overall performance of the market. It is more like a road sign, telling you where you will go in the future through the way you came.

Report report

Report report

There have been 5 circuit breakers in the history of the three major U.S. stock indexes, and 4 of them occurred consecutively in this March, allowing financial investors all over the world to witness history. Investors are aware of the existence of the index, panic about the circuit breaker, and think that the existence is reasonable. But I haven't delved into what is an index and its meaning of existence.

what is index

The most famous indexes in the world are the Dow Jones stock index and the Standard & Poor's 500 index.

The Dow Jones stock index is the oldest stock index in the world, and its full name is the stock price average. It was compiled in 1884 by Charles Dow, the founder of Dow Jones & Company. Its original Dow Jones stock price average index is based on 11 representative stocks of railway companies, calculated and compiled using the arithmetic mean method, and published in the "Daily Newsletter" edited and published by Charles Dow himself. The calculation formula is: average stock price = sum of prices of selected stocks/number of selected stocks. Since 1897, the Dow Jones stock price average index has been divided into two categories: industry and transportation. The industrial stock price average index includes 12 stocks, and the transportation industry average index includes 20 stocks. published in the Wall Street Journal. In 1929, the Dow Jones stock price average index added utilities stocks, bringing its inclusion to 65 stocks, and has continued to this day. The current Dow Jones stock price average index is based on October 1, 1928, because the Dow Jones stock price average at the close of the day happened to be about 100 US dollars, so it was set as the base date. In the future, the calculated percentage of the stock price compared with the base period will become the voting price index of each period. Therefore, the current stock index generally uses points as the unit, and the rise and fall of each point of the stock index is the rise and fall relative to the base date. percentage.

The Standard & Poor's 500 Index was compiled by Standard & Poor's in 1957. The initial constituents consisted of 425 industrials, 15 railroads and 60 utilities. Beginning on July 1, 1976, its constituent stock reform consisted of 400 industrial stocks, 20 transportation stocks, 40 public utilities stocks and 40 financial stocks. It takes 1941 to 1943 as the base period, and the base period index is set at 10. The weighted average method is used for calculation, and the weighted calculation is carried out according to the base period with the stock listing volume as the weight. Compared with the Dow Jones Industrial Average stock index, the S&P 500 index has the characteristics of wide sampling, strong representativeness, high accuracy, and good continuity, and is generally considered to be an ideal target for stock index futures contracts.

Circuit Breaker, also known as the automatic suspension mechanism, refers to the suspension of trading measures taken by the exchange to control risks when the volatility of the stock index reaches the specified circuit breaker point. Specifically, it is a mechanism to set a circuit breaker price for a certain contract before reaching the price limit, so that the contract's buying and selling quotation can only be traded within this price range for a period of time. Its purpose is to give the market a cooling-off period for a certain period of time, warn investors of risks, and buy time and opportunities for relevant parties to adopt relevant risk control measures and measures.

The specific compilation of the Shanghai Composite Index

1. The full name of "Shanghai Composite Index" is "Shanghai Stock Exchange Composite Stock Index", also known as "Shanghai Index", which is a statistical indicator widely used at home and abroad to reflect the overall trend of the Shanghai stock market. The Shanghai Composite Index is compiled by the Shanghai Stock Exchange and released to the public on July 15, 1991. The Shanghai Composite Index uses "points" as the unit, and the base date is December 19, 1990. The base day index is set at 100 points. With the continuous development of the Shanghai stock market, on February 21, 1992, the Shanghai Stock Exchange A-Share Index and the Shanghai Stock Exchange B-Share Index were added to reflect the respective trends of different stocks (A shares, B shares). On June 1, 1993, Shanghai Composite Index was added, namely industrial index, commercial index, real estate industry index, public utility index, and comprehensive industry index to reflect the respective trends of stocks in different industries. So far, the Shanghai Composite Index has developed into a stock index series including comprehensive stock index, A-share index, B-share index, and sub-indices.

2. Calculation formula
The Shanghai Composite Index is a weighted comprehensive stock price index calculated by the Pasch formula with the number of shares issued in the reporting period as the weight.
Index during the reporting period = (total market value of sampled stocks during the reporting period/total market value of sampled stocks on the base day) × 100
Total market value = ∑ (market price × number of issued shares)

Among them, the total market value of the sampling stocks on the base day is also called the divisor.

3. Correction method
When the total market value changes due to non-trading factors, the "divisor correction method" is used to correct the original fixed divisor to maintain the continuity of the index. The correction formula is as follows:
Total market value of sampled stocks before correction/original divisor=total market value of sampled stocks after correction/modified divisor From this, the continuity after correction is obtained, and the future index is calculated accordingly.
When the stock pays dividends, the index will not be revised, and it will fall back naturally.

According to the actual situation of the Shanghai stock market, if one of the following situations occurs, an amendment must be made:
(1) Listing of new shares
(2) Stock delisting
(3) Changes in the number of share capital (bonus shares, allotment, capital reduction, etc.)
(4) Stock withdrawal (temporarily not included in the index), reinstatement (re-included in the index)

(5) Exchange rate changes
New stock listing: The new stock is included in the index on the second day of listing, that is, it is not included in the index on the day, and the index is revised after the market closes on the day. The correction method is as follows:
The total market value of the day/original divisor = the total market value of the day + the number of new shares issued × the closing price of the day/the revised divisor
Ex-rights: Correct the index before the opening of the stock's ex-rights trading day:
Total market value of the previous day/original divisor = [total market value of the previous day + number of ex-right stocks issued × (ex-right quotation - closing price of the previous day)]/modified divisor
Withdrawal: on the ex-right base date of the stock that includes the transfer, the stock will be removed from the constituent stocks of the index;

Restoration of rights: The stock with rights revoked will be included in the calculation range of the index from the eleventh trading day after the allotment part of the stock is listed and circulated.

By observing the compilation of the Shanghai Composite Index, we can find that the overall compilation process of the index is not complicated, and the main purpose is to reflect the overall situation of the market. In fact, the index is a comprehensive performance of the market as a whole, helping investors to see the overall situation of the market more clearly. Although there will be noise interference, it will not have a big impact on the overall direction. And the index is a reference value for investors to judge market behavior, and an overall indicator for evaluating the rise or fall of the entire market.

The meaning of the index

The significance of compiling stock price index:
1. The rise and fall of the stock price index not only reflects the history or trajectory of a certain stock market from the past to the present, but also reflects the basic situation of social and economic development at that time. It is a barometer for measuring a country's political and economic climate.
2. The stock price index is a price average that reflects changes in the stock market. From a static point of view, it represents the relative level of listed stock prices at a certain point in time; from a dynamic point of view, it represents the situation and magnitude of the average rise and fall of stock prices in a certain period of time.
3. The stock price index provides an open and legal reference for investors to invest in stocks. With the help of the stock price index, investors can judge and analyze the average price level of stocks, observe and choose the most suitable investment opportunities for them.
4. The stock price index also provides tools for investors to trade stock index futures and options. Now stock index futures and options have become one of the important derivative financial instruments in the international financial market.

5. The diversification of stock indexes also provides fertile soil for the development of ETFs and gives investors more choices.

The digital currency market also needs the existence of an index. At present, the digital currency market lacks a widely recognized index with a holistic perspective. In the absence of a widely recognized index, ETFs lack the soil for growth. And the existence of the index will also have a huge promotion effect on funds and quantitative products. On the one hand, it can promote the liquidity of the entire digital currency market, and on the other hand, it will also set up a comparison value for funds and quantitative products in terms of performance.

ETF overview

ETF: Exchange Traded Funds, the Chinese name is trading open-end index fund, which has the advantages of stocks, open-end index funds and closed-end index funds, and is an efficient indexing investor tool. ETF was first produced in Canada, while its development and maturity are mainly in the United States. In 1993, the American stock exchange launched the first ETF-SPDR that truly tracked the S&P index. Since its launch, ETF has been favored by investors, and its scale has continued to rise. It has become the first choice for ordinary American families and chicken heads to invest in the stock market. In 2004, the Shanghai Stock Exchange launched China's first domestic ETF, the SSE 50 ETF, which kicked off the ETF scene.

From the perspective of holding scale, ETF is also one of the important configurations of institutions. According to the data of the Shanghai Stock Exchange, the total market value of Shanghai ETFs held by individual investors is 96.009 billion yuan, while that held by institutional investors is 370.177 billion yuan.

The advantages of ETFs are:
1. As an investment tool for index tracking, ETF is the easiest way to invest in the market when the market is optimistic about the development prospects in the long term.
2. ETF is a basket of stocks traded on the floor, which greatly reduces the risk of thunderstorms for individual stocks and disperses risks, but does not excessively reduce the growth dividend when the overall market is improving.

ETF is already a mature product with a wide audience in the traditional financial market, but it is still an emerging field of experimentation in the digital currency market, mainly due to the lack of diverse index support.

Conclusion

Conclusion