What lies beneath
AbstractFor most investors, an index is a number. The number tells them something about the current state of a market for stocks, bonds, credit derivatives, or some other instrument, be it foreign or domestic. For those that have invested in an index fund, the change in that number from day to day closely represents the movements of their portfolio. Not too many people think much about what it takes to produce that number, and the few that do usually regard the process as a bit murky no matter how clearly stated the index methodology may be. Imaginative folks may envision a troop of grumpy gnomes scribbling with quill pens, feeding their handiwork to awaiting index fairies that deposit the results under the pillows of financial publishers everywhere. In truth, of course, the process involves complex computer systems and endless cycles of research and adjustment. Like an iceberg, the visible part of an index misleads even informed viewers about the immensity, and the importance, of work that lies beneath the surface.
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Bibliographic InfoArticle provided by Capco Institute in its journal Journal of Financial Transformation.
Volume (Year): 11 (2004)
Issue (Month): ()
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Indices; index methodology;
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- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
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