A Guide to Equity Index Construction (2nd Edition)
First published:
ISBN: 9781782724483
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Introduction
Introduction
Preface
Acknowledgements
Introduction
Which benchmark?
Modern portfolio theory and the benchmark index
Sampling and selection
Construction method
Making the index investable
Collection and processing of data
Servicing and maintenance
How to handle industries
How to handle countries and currencies
Factor indices and smart beta
Innovative indices
The commercial indices
Indexation and exchange-traded funds
Bespoke “custom-made” indices
Tying it all together
Appendix: The GICS methodology
Bibliography
Disclaimer
INTRODUCTION
“The industry is desperately in need of clearer’ definition of terms’.”
—Steven Schoenfeld, Chief Executive Officer at MarketVector Indexes
The reader of this book will be equipped to construct an equity index from both a Wall Street perspective and a Main Street perspective. More importantly, the reader will be better equipped to understand the nature of the underlying return series. He/she will be equipped to construct an optimal index and with skill outperform a suboptimal index as an active asset manager. It is first necessary to define a benchmark.
Definition 1.1. Benchmark A benchmark is a standardised tool that can be used as a point of reference (Stevenson, 2011).
A benchmark can be tailored to measure and attribute the performance of professionally managed alternative investment assets. A good description of its uses can be found in Conover et al (2013). They point out that benchmarks are an important fund management and reporting tool. That said, there is no consensus on what benchmark is the most appropriate, particularly for alternative assets. The following chapters therefore close some of the gaps in the literature on benchmarks, and provide an incremental
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