I'm sure the Ibex, the Nasdaq are familiar to you ... What you may not know is exactly what these terms refer to. Well, these are stock indices, do you know what they are?
Next we are going to clarify what stock indices are, what functions they have, as well as types that exist today. If you are interested in the subject, do not hesitate to continue reading it.
What are stock indices
Stock indices, also known as stocks index, Are actually indicators that help to know what the price variation of listed assets has been, as long as they meet a series of characteristics.
In other words, we are talking about a reference value that offers you a set of values quoted in the stock market on that certain element, in such a way that you can see how it has changed in price over time with a single glance.
This numerical value is used above all so that the person can get an idea of how the state of the company he is analyzing is doing, in such a way that he can see if it is a good time, or on the contrary, if it is better not to invest in it .
Among the many stock indices that exist today, the oldest is the Dow Jones Transportation Average, an index that was created on July 3, 1884 by Charles Dow (hence his name), a journalist and precisely the founder of the Wall Street Journal. Right now, it is made up of 11 transport companies of which 9 are railways.
Functions of stock indices
Now that you know what stock indices are, it is very likely that you have an idea of what the objectives are. But to make it clearer, these functions are divided into the following:
- They help measure performance. That is, by being able to see the price variation that a company has, you can know if it is a good option to work with it or not. This allows managers to do a better job.
- It allows to know if there is profitability or risk in the market. Therefore, by seeing the different price changes you can know if it is a good time to work with it or not.
- In some cases, stock indices they become the basis of investment products.
- It allows to measure a financial asset. Obviously it is not a 100% reliable indicator, almost none are, but you can do a beta (that is, a test) obtaining those variable values to make the most appropriate decisions.
Types of stock indices
If you remember the beginning, you will know that There is not just one stock index, but several of them. Experts can rate them in many different ways, although the most common are usually 3. These are:
According to its origin
Specifically, they are based on where these indices come from or where they operate. What classification is obtained?
- Nationals. When the assets they work with only belong to one country.
- International. When the assets are in several foreign countries. It does not matter if it is only one and the rest are in the same country, for that one it would already be international.
- Global. This differs from the previous one in that the assets are not concentrated in a few foreign countries but are all over the world.
According to the company
The second most used classification is the type of company that it is. In this case, we are talking about:
- Sector indices. When the companies that make up the assets are focused on a specific sector.
- Intersectoral. Unlike the others, here you would not have a single sector but there would be several of them.
According to the type of assets
Finally, the last of the most common classifications relates to the assets with which we work, classifying the indices in:
- Of variable income. When the assets are primarily stocks.
- Fixed rent. In which bonds and obligations come into play. In this second case they would be of any type.
- Raw Materials. Specifically, we are talking about silver, oil, gold ...
What stock indices are there in the world
Talking about each and every one of the stock indices can be quite tedious and boring. However, it is true that there are some of them that are used more (or are better known).
We refer to Dow Jones (in the United States); Nasdaq (also in the US); Eurostoxx50 (in Europe); Nikkei (Japan); or the Ibex35 (in Spain, and the main one that includes 35 companies with a fairly high capitalization and liquidity).
Now, these that we have mentioned are by no means the only ones that exist. In fact, depending on the country (or continent) we can find more than one representative. For example:
In the case of United StatesIn addition to Dow Jones and Nasdaq, another of the best known and most used is the S&P 500, which, as the figure indicates, is made up of 500 companies on the New York Stock Exchange and Nasdaq, among the largest in the country.
If we go to EuropeThere are three stock indices that must be taken into account. Are:
- Dax 30, of German origin and which includes 30 companies, the most important of the Frankfurt Stock Exchange.
- FTSE 100, originally from London, and with the 100 most important companies. Like Dow Jones, this stock index was created by a newspaper, the Financial Times newspaper.
- CAC 40, again with 40 companies, only from the French stock market.
Going back to the part of America, But in this case in the south, the main stock market indices, which are not generally taken into account (at least in Spain), are:
- Bovespa, of Brazilian origin and made up of 50 companies on the Sao Paulo Stock Exchange.
- IPC, Mexican, and controlled by Carlos Slim.
- IBC Caracas, which is the main index in Venezuela and is made up of 16 companies.
- IGBVL, from Peru.
- Merval, from Argentina where you find the most important companies on the Buenos Aires Stock Exchange.
- IPSA, from Chile.
- MSCI Latin America. It is one of the international stock market indicators since it has companies from Brazil, Peru, Mexico, Chile and Colombia
At the Asian levelIn addition to Nikkei, also noteworthy are the SSE Composite Index, the most important in China; KOSPI, from the South Korean side; BSE Sensex, from India; o Hang Seng Index, from Hong Kong.
Are you now more clear about what stock indices are?