Volatility and Stock Price Indexes
AbstractThe stochastic approach to index numbers has been successfully applied to the estimation of the Consumer Price Index (CPI). One distinct advantage of this approach is that it provides the whole distribution of the index, not simply a point estimate of the rate of inflation. In this paper, we extend the application of the stochastic approach to the estimation of a stock market index. We demonstrate how this approach can be used to identify “redundant stocks” that do not contribute significantly to the overall index. For index tracking purposes, these stocks can be safely excluded.
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Bibliographic InfoPaper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 11-16.
Length: 23 pages
Date of creation: 2011
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