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A Proposal to Make the Float Factor of the Mexican Stock Market Index more Efficient: A Mean Reversion Model for Relative Flotation

Author

Listed:
  • Salvador Cruz Aké

    (Investigador, Escuela Superior de Economía (ESE), Instituto Politécnico Nacional (IPN). México, D.F. Mexico.)

  • Reyna Susana García Ruiz

    (Investigadora, Escuela Superior de Economía (ESE), Instituto Politécnico Nacional (IPN). México, D.F. Mexico.)

  • Francisco Venegas-Martínez

    (Investigador, Escuela Superior de Economía (ESE), Instituto Politécnico Nacional (IPN). México, D.F. Mexico.)

Abstract

This paper develops two methodological approaches for calculating the float factor of the stock market index (IPC) of the Mexican stock market (BMV). The first one assumes that the free float factor is approximated by the normalization of the daily market rotation of each title, while the second one uses the relative daily market rotation. In both cases, the float factor is simulated by a variable with mean reversion similar to the one proposed in Cox, Ingersoll and Ross’ model (1985). The methodologies we have established here remedy the inability to replicate the IPC because of the elements of confidentiality that the float factor currently has. Moreover, the proposed flotation factor can be updated instantly given the nature of the developed models. The paper shows that the weights of the firms in the IPC, calculated by using the formulated methodologies, are substantially different from those provided by the BMV when applying its flotation factor, which contains discretionary components of information difficult to verify.

Suggested Citation

  • Salvador Cruz Aké & Reyna Susana García Ruiz & Francisco Venegas-Martínez, 2013. "A Proposal to Make the Float Factor of the Mexican Stock Market Index more Efficient: A Mean Reversion Model for Relative Flotation," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(4, Cierre), pages 465-495.
    • Handle: RePEc:emc:ecomex:v:22:y:2013:i:4:p:465-495
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    More about this item

    Keywords

    capital markets; stock market indices; models with mean reversion.;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools

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