"headache"

One of the "headache" in the financial sector, analysts developed countries are confronted with the fact the proliferation index. Varies, , even duplicates. There were hundreds of real sector activity index, there is a leading, there is a coincident, there are lagging. Scattered all commodity price index, both single commodity or commodity group. In financial markets more exciting. Make a list of equity-based index in the United States capital markets alone may require five to six single-spaced printed pages. Starting from a worldwide group of Dow Jones to PHLX Gaming Index of local exchanges in the Philadelphia Stock Exchange itself was not widely known. In financial markets, stock price index (IHS) does have a lot of functions. Column this time to tell stories about it. First, as index, the IHS to function as a market trend. In this function it has appeared the problem, because in a stock exchange composite index contains stocks that are not illiquid, the price is often misleading because it old era. That culminated LQ cause JSE Composite Index 45 to complete the already born earlier. Second, the IHS is an indicator of the average profit level of stocks which are members of the index. Here become more complicated. Take, for example: Some of the IHS is calculated by the average price formula requires an adjustment every time there is an impact of corporate actions split or fall in stock prices. As an indicator of profitability IHS should only be changed if the owner of the stock portfolio, which consists of the index change in real wealth. Imagine a stock that originally cost USD 10 000 conducted a stock split "one half". Theoretical ex-split share price will be USD 5000. Shareholders do not actually become richer or poorer (Neither donor better off Worse off) because if he had had one stock at a price of Rp 10,000, now owns two shares at Rp 5,000. As with the average index price. Without adjustment, the index will decline. Without adjustments to be made consistently, the index would be very misleading as an indicator of profitability. Third, the IHS to facilitate the formation of index funds (index funds). Stock index, which members are selected with a good and transparent criteria are directly helping investors investing in the sorting and stock as an investment object. If the composite index may be compared as a sack of oranges of all sizes, quality and taste, then the index is selected with good separation between the orange seashell, citrus, citrus-Medan and even - shaddock. That's why the Dow Jones Industrial Average is a "mere" consists of 30 stocks selected from tens of thousands of shares of public companies in the United States is often dubbed as the bluest of blue chips. And it proved to be a success story for dozens of mutual funds and then attention to members of the DJIA stocks Fourth, the IHS also enrich the underlying asset derivative instruments such stock index futures (SIF) and options on SIF. The presence of such derivatives, in addition, the hedging instrument that provides umbrella coverage for portfolio investment manager, is also very easy and lowering transaction costs. Taking a long position on a direct substitution of the SIF is made consisting of stocks of that index. You certainly can imagine the difference: Take long position on the SP 500 futures with one-time transaction and a one-time pay a commission to buy 500 shares of SP 500 with a particular composition which means that 500 times and 500 times the transaction commission. In its function as an underlying asset, the IHS had to be available in the market range. Even richer variety of portfolios, the more index derivatives are required. For the purpose of hedging, investment managers would choose the members of the SIF index closest to the composition of the managed portfolio. Fifth, closely with the third and fourth functions, IHS has an important function as a benchmark (bench mark) in evaluating portfolio performance. In all portfolio evaluation approach, it takes the market benchmark, market bench mark. It's not funny an investment manager of stock mutual funds to use as a benchmark JSX Composite Index. Just not funny to measure the quality of citrus field using mixed bag of oranges as a benchmark. To obtain the composition of portfolios with better performance than the performance of JCI is not necessary quality of a manager investing, simply done by a regular who has common sense, which can differentiate between prospective companies which do not. Which industries are growing where the sun sets. Investment manager of stock mutual funds that use Composite Index as the benchmark portfolio performance, quality elected himself as the expert. It's just that at this stage there is still the black sheep who can be a scapegoat: " stock price indices are available in the country, it is just that-that's all"