1. CISI – Financial Products, Markets & Services
Topic – Equities
(4.1.9 and ) Stock Exchange Indices

2. Learning Objectives Know the types and uses of a stock exchange index
Know to which markets the main indices relate to

3. Stock Market Indices
The media refer to stock market indices daily, reporting on movements in the FTSE, Dow Jones and others.
You have come across indices before which are used to measure different things:
e.g. Retail Price Index (RPI) and Consumer Price Index (CPI) both measure inflation

4. Much Higher Numbers – reflects a number of points, not share price
Share Indices
Sell
Double top ‘M’
Much Higher Numbers – reflects a number of points, not share price
Buy
Sell
Double bottom ‘W’
Buy
Sell
The line is not as erratic in its movements compared with the share price charts – it provides a snapshot of overall share price movements in the FTSE 100 companies
Buy

5. Stock Market Indices Benefits of share indices
The FTSE 100 is an example of a stock index.
Stock indices do the following:
Provide a snapshot of how share prices are performing in a particular stock market, or across several markets.
Measure price movements in markets across a number of different types of stocks.
Calculate the aggregate price movement of its targeted stocks on a daily basis,
Provide a single figure for ease of comparison.
Benefits of share indices
Allows investors to gauge the overall performance of the market (not easy to do by looking at individual share prices)
A stock index will smooth out anomalies and provide a consistent picture of the mood across the market.
Provide a benchmark for investors - assess whether their portfolios of shares are doing better (outperforming) or worse (underperforming) than the market in general.

6. Stock Market Indices – Measurements
A selection of shares from several stock markets around the world
A selection of shares from a single stock market
e.g. Shares classified according to size (market capitalisation)
Measures price movements across
All shares listed on a single stock market.
Stock Market
Indices
Mid cap companies (market capitalisation value of between $2 billion to $10 billion)
Small cap companies (market capitalisation value of between $250 million–$2 billion)
Large cap companies (market capitalisation value of more than $10 billion)
Provide a snapshot of how share prices are performing in a particular stock market, or across several markets
Pharmaceuticals
Utilities
Industrials
‘Green’ stocks (following sustainable and environmentally friendly policies)
‘Sin free’ stocks (Avoiding earnings from alcohol, tobacco, gambling and weapons)

7. all reviewed every 3 months.
Stock Market Indices - UK
FTSE 100
FTSE 250
FTSE 350
FTSE All Share
AKA the ‘Footsie’
Index of the largest 100 UK companies
Covers about 70% of the UK market value
Index of the next 250 medium sized (mid cap) companies below the 100.
Combination of the FTSE 100 and FTSE 250 indices.
The 350 is broken down into industry sectors e.g. retailing and transport
Covers over 800 companies.
Includes FTSE 350
Accounts for 98% of the UK market value.
Used as a benchmark against which diversified share portfolios are assessed.
all reviewed every 3 months.
Companies with a share price growing strongly and a significantly increasing market capitalisation replace those whose share price and market capitalisation is static or falling

8. Dow Jones Industrial Average
Stock Market Indices - World
World Indices
Japan
France
USA
Dow Jones Industrial Average
(DJIA or ‘The Dow’)
A narrow view of the US stock market
30 stocks
S&P 500
A wider view of the US stock market
500 stocks
Nasdaq Composite
Focuses on shares traded on the Nasdaq
Includes many technology companies
3000+ stocks
Germany
Xetra DAX
Hong Kong
China
30 Stocks
Hang Seng
225 Stocks
40 Stocks
58 Stocks