A Guide to Equity Index Construction (2nd Edition)
First published:
ISBN: 9781782724483
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Collection and processing of data
Collection and processing of data
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
“Indices that represent a subset of the market can often experience higher turnover than the broad notion of the market portfolio. For example, say you’re managing a portfolio to match an index of the largest 100 stocks. Since the capitalisation of companies changes constantly, the list of the largest 100 stocks will change as some stocks become smaller and fall off the list, and other stocks become larger and join the list.”
—Eric Brandhorst, CFA, Director of Research, Global Structured Products
This chapter is dedicated to the preparation, collection and processing of data essential for the creation of an index or benchmark. Constructing an index involves grappling with a substantial volume of data, presenting a formidable challenge, and maintaining it poses unique difficulties. It is imperative to recognise that managing this challenge is fundamentally a matter of effective management and logistics, with its resolution lying in meticulous forward planning.
To tackle this, thoughtful consideration should be given to the initial phases of storing and linking data spreadsheets. In this respect, it should be appreciated that time series generate what is termed “big data”.
De
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