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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 671.910.0%Nov 14 4:00 PM EST
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To: James F. Hopkins who wrote (2927)12/27/1998 11:11:00 PM
From: Moominoid  Read Replies (1) of 99985
 
meaning you take the market cap of a stock / the total market cap of all stocks in the index and get a
weight, or it's percentage
of the total market cap. Then you allocate your Dollars invested
among the stocks by the percentage given, just how many shares you
wind up with depends on what you $invest * the %of its cap /
price of the stock. Big caps get more weight and move the index
more any time they change price.

Yes but this still doesn't tell me how the index is constructed unless it is just the total market cap relative to a base period.

For example the Tornquist-Theil index is given by the following formula:

Dln(It) = 0.5 * sum i{(St + St-1) * Dln(Pit)}

where D is the first difference of the variable, ln is natural logarithms, i is the index for the different stocks, t is the time period, P is the prices of the stocks and S is their market cap weight in this case or the share of whatever in other cases.

The quantity index can be derived by then dividing the total market cap in each period by the price index I.

This is now a pretty standard economist's index. But I wonder if the SP500 is anything liek this or just total market cap relative to the base period.

David
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