Stock indeces

No dude - the index is weighted average of the constituents. So a simple addition will not work. Also the weightings change almost daily (as dividends are paid) through a process known as chain linking.

If you want to find the weightings do a web search - the ftse.com website has them for the FTSE indices.

Depends which index they are all calculated differently. Most use an arithmetic weighted average which is calculated as the (sum(price_stock(now)*quantity_stock(now))/sum(price_stock(base_date)*quanti ty_stock(now)))*base_index_value. Mathematically this makes it easy to adjust for new shares entering and exiting, new issues etc as each stock in the index can have its own base_index_value when it entered the index and the index will still work.

Nasdaq use a modified (anyone's guess how) weighted average.

Dividends make the indices fall as they effect the price.

Hi,

Ok I will try to explain what I wanted. I am a programmer. I saw CNET site, they created CNET Tech Index. Look for details here:

$CNET Also they created sub-indices like: PC Software, PC Hardware, Server Software, Semiconductors etc.

My idea is to create sub-indeces inside software category only: development tools (Borland), design tools (Adobe, Macromedia), security (Symantec, Network Associates), games (Electronic arts) and so on. So my goal (an idea) is to track and understand which software category is growing faster.

In fact I can import price values of shares from some sites like yahoo, for example, for Microsoft:

The problem is that quantity_stock can't be easily imported, I would have to enter it manually.

(sum(price_stock(now)*quantity_stock(now))/sum(price_stock(base_date)*quanti ty_stock(now)))*base_index_value

BTW where can I take quantity of stock? Maybe I can use more simplified method if I just need to now which software category is growing faster: for example using only price of stock and its volume as in formula above (instead of quantity of stock). So this would be some kind of approximation of real index.

Something like this: (sum(price_stock(now)*volume_stock(now))/sum(price_stock(base_date)*volume_s tock(now)))*base_index_value

(sum(price_stock(now)*quantity_stock(now))/sum(price_stock(base_date)*quanti

(sum(price_stock(now)*volume_stock(now))/sum(price_stock(base_date)*volume_s

(sum(price_stock(now)*quantity_stock(now))/sum(price_stock(base_date)*quanti

See my other post if you want technical details of the correct calculation. I don't know where to get correct weights (assuming you want to use market cap) from but you could always find out from the companies concerned - you will need to be careful because they can change with rights issues, scrip dividend issues, changes in ownership etc. etc.

Also it is your own index so use whatever weights you want to use. The DJIA30 is actually a price-weighted index - crap or what? And yet it is the most well known measure of US stock market levels.

Use the market cap at the beginning to calculate the term quantity_stock(base_date) and ignore subsequent changesas these will be a problem. One of the reasons MSCI and FTSE can charge a fortune for their index data is that these changes are not straightforward and consistency is important.

From comments below:

I have given you the correct basic calculation methodology for a FTSE type index.

However, the real indices are more complicated because of changes to the number of shares in issue for companies changes all the time. The purpose of the index is to track the change is prices weighted by market cap but ignore changes in market cap. that would result of new shares being issued and shares being redeemed. As a result, there is effectively a change in the base date index value everytime new shares for a company are issued or removed from the index, although I think that unless significant, these happen at fixed dated now. Therefore the index value is calculated before the change, the changes are made and the index divisor term (i.e. the sum(price_stock(base_date)*quantity_stock(now))*base_index_value) is adjusted to fit, with the base_date changing to the new date. As a result the changes to market weightings for new shares result in a seamless transistion.

calculation.

Sorry - you are right - I was getting confused with scrip dividends where the index is chain-linked to leave it unaffected.