Hi
We use the HGS software to build those indexes every week. They ar
ebuilt using the equal dollar weighted method, I've included the
entry from the help file below.
Best regards,
Gary Lyben
Equal Dollar Weighted Index
General comment about Equal Dollar Weighting: Equal dollar weighting
means that on the start date of the index an equal amount of money
is invested in each stock. This will "purchase" a different number
of shares of each stock. That start date is then scaled to a value
of 100. Then each day after that the value of the index is
computed. As a result percent changes in the index have little
correlation with average gain of stocks (unless you make the index a
price average index). In addition due to the scaling to 100 on the
index start date the percents will be very different. The two
things are vastly different. This is why HGSI has the Group
performance analysis tool (in the Designer) to compute the
performance of stocks and not an index percent change. The GPA
solves the start date issue as well percent differences. Not that
HGSI indexes are wrong, they just don't correlate 100% when you try
to do a manual % change calculation of dates looking at chart
values. And shouldn't.
Detailed explanation of Equal Dollar Weighting: One means of
calculating cumulative price performance of a group of securities is
by creating an equal-dollar weighted index. An equal-dollar
weighted index calculates the performance of a group as if you
invested the same amount of money in each security.
For each security in the index, the HGSI calculates the number of
shares you could buy given an investment amount on the Index's base
date (Investment Amount / Base Price). The number of shares
calculated are not rounded resulting in fractional shares. In this
case where you want equal contributions from each security,
fractional shares work well.
On a daily basis, the HGSI computes how much those shares are worth
using the current days closing share price to determine your
position value. (current price - base price) * # shares purchased +
investment amount)
The position value for each of the securities that make up the index
are added together. This total is divided by the total amount of
money invested in this index. This number is then normalized by
multiplying by 100 so that on index start date it is worth 100.
(position value1 + position value 2
) / total investment amount *
100).
An index value of 100 means your (basket, portfolio, industry) has
broken even, neither losing or gaining. Values higher than 100
means it has made money. Values less than 100 means it has lost
money.
The following table shows the Equal Dollar Index using Ford and
General Motors as the group.
Date
Ford Price
GM Price
Ford Shares
GM Shares
Ford Position
GM Position
Index Value
11/1/85
5.25
33.75
1904.761
296.2963
10,000
10,000
100
11/4/85
5.25
33.813
"
"
10,000
10,018.7
100.093
:
:
:
:
:
:
:
:
04/9/98
46.875
67.437
1904.7619
296.2963
89,285.7
19,981.5
546.336
The following table give some reasons to use Equal Dollar Weighted.
If you used a "Price Value Weighted Index", Intel (INTC) would
overshadow the contribution of the other two stocks. Similarly,
a "Market Value Weighted Index" would favor Intel with 885,000,000
shares outstanding. An "Equal Dollar Weighted Index" is the only
way to build an indicator allowing for equal contribution from each
security in the group.
Security
Investment
Price on Index Start Date (Base Price)
Shares purchased on index start date
Shares Outstanding (thousands)
INTC
10,000
133.25
75.0469
885,000
AB
10,000
49.88
`2000.4812
16,341
GLM
10,000
21.50
465.1163
168,189
Using the Equal Dollar Weighted index, you can analyze the past
performance of a group, or weigh the consequences of including or
omitting various securities from the group. You could also use this
approach to compare the performance of two or more groups of stocks
by comparing their resulting indicators.
--- In [email protected], Gilda Gross <[EMAIL PROTECTED]>
wrote:
>
>
> Gary,
> Are the 190+ group indexes in Quotes Plus data base price-
weighted, capitalization-weighted or equal dollar weighted? For
instance, the Dow 30 is a price-weighted index while the S&P 500 is
a cap-weighted index.
>
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