Talk:Stock market indexing

Notes on page development


 * This page is devoted to indexes and index providers, not index funds;
 * Since we have a number of pages which tabulate fund selections we can hyperlink to these at the end of each section.
 * This page might be enhanced with graphics (style boxes or pies)
 * There are major dispersions of returns among style indexes; we may wish to create separate data pages for each index provider (although a spreadsheet version of this data would be appropriate for number crunching). This would be a major undertaking. It would be easier to defer this to the papers which have been written on this phenomenon, but they may not be accessible.
 * A link to the page Alternate Indexes would allow us to treat the following:
 * Social Responsibility Indexes
 * Fundamental Indexes
 * Equal Weighted Indexes
 * Dividend Weighted Indexes
 * Inverse and Leveraged Indexes

Blbarnitz 15:07, 29 August 2008 (UTC)

Grammar check: Suggest use of "Indices" instead of "Indexes", also "Alternative Indices" instead of "Alternate Indexes" I think this reflects more appropriate usage. OK if I change this? Will affect several pages. LadyGeek 02:11, 22 June 2009 (UTC)

Is this page intended to link with the cap weighted index pages (and the indexing sidebar?) Everything is on this page except cap weighting. --LadyGeek 01:42, 17 April 2010 (UTC)

Not until someone develops the page.--Blbarnitz 08:07, 17 April 2010 (UTC)

Perhaps this page should be renamed to Stock Market Indexes? Then, it will make sense add to this page to the Indexing sidebar so you associate the benchmarks with the funds. I got confused on the title, which was why I (incorrectly) I asked about the cap weighted index pages (which are funds). --LadyGeek 01:48, 20 April 2010 (UTC)
 * I hesitate at adding undeveloped, underdeveloped, and stub pages to the sidebars. This page and the alternate index page were among the series of index pages we created and offered to the forum population to develop. We followed this procedure (creating two or three stub pages on various topics for inclusion in the "This Week on the Wiki" series for about two months.) Not a single forum member ever contributed to any page offerings.--Blbarnitz 14:39, 20 April 2010 (UTC)

Investopedia has a good tutorial Index Investing. Perhaps provide a background to the tutorial, then expand from there. References: Is this a good approach? As noted above, what type of graphics would go on this page? I don't see anything that would fit here. Otherwise, I can take a crack at this.--LadyGeek 00:50, 21 April 2010 (UTC)
 * Yahoo finance indices <-- Every major US and world index with complete list of components and historical prices.
 * Richard Ferri articles on Forbes
 * index company websites


 * The best approach for developing the page (in addition to the Investopedia tutorial, is to 1) Provide an explanation of how each index provider encompasses the market with its methodology. The first division is by market cap. The perfect graphic for this in the Vanguard paper I have referenced on most of the index return pages, Determining the appropriate benchmark: A review of major market indexes. The graphic is figure 1. on page 4. (I would have downloaded this figure to the wiki only I have no way (or am ignorant) of downloading an image from adobe pdf files). 2) In addition to the market cap breakdowns of each provider, one needs to account for the way each provider measures growth and value metrics for inclusion in style indexes. For narrative purposes, the index methodology texts may have this (sometimes in heavy jargon). Probably the best reference to use in conjunction with provider websites and methodology statements is the Vanguard Benchmark site that, once again, I reference in a page or two of the index return pages I have been working (I probably need to include this link on most of the pages!). Each provider page in this Vanguard source contains a methodology tab in the page sidebar and a  summary of the provider's  methodology. Vanguard provides material for MSCI, S&P, and Russell. (Dow Jones and Morningstar are not included because Vanguard has no index fund benchmarked to these provider's indexes). The unbeatable tabular presentation of this material, however, is from Determining the appropriate benchmark: A review of major market indexes, this time in the appendix on page 13 and its tabular figure. We would have to add Morningstar decision factors to this table.


 * The ultimate value of this page will be to show that the return dispersions we see in index provider returns have much to do with how each provider carves up the market and decides which stocks go into the index. Naturally, it would be nice to find sources which discuss the ramifications of these differentials,(see pages 10-14 from The Case for Indexing, for example, which I have once again cited) rather than having us making original suppositions. Additional sources for this may be Rick's book All About Index Funds and we may be able to coax forum members into collaborating on this page, since Robert T. and others can perform Fama French regressions on the indexes and provide loadings (although this skirts the original research taboo.) They might also be tempted to discuss these results in layman's terms so that unsophisticated investors can grasp the meaning of the results. --Blbarnitz 05:47, 21 April 2010 (UTC)

Discussions during development (moved here)
I moved the Stock Indices page content here, as the material completely superseded this page. Even if further development is needed, it's a significant improvement. --LadyGeek 12:01, 29 May 2010 (UTC)

Approach
Blbarnitz 05:47, 21 April 2010 (UTC): The best approach for developing the page (in addition to the Investopedia tutorial), is to:


 * Provide an explanation of how each index provider encompasses the market with its methodology.
 * 1) The first division is by market cap. The perfect graphic for this in the Vanguard paper I have referenced on most of the index return pages, Determining the appropriate benchmark: A review of major market indexes. The graphic is figure 1. on page 4. (I would have downloaded this figure to the wiki only I have no way (or am ignorant) of downloading an image from adobe pdf files).


 * In addition to the market cap breakdowns of each provider, one needs to account for the way each provider measures growth and value metrics for inclusion in style indexes. For narrative purposes, the index methodology texts may have this (sometimes in heavy jargon).
 * 1) Probably the best reference to use in conjunction with provider websites and methodology statements is the Vanguard Benchmark site that, once again, I reference in a page or two of the index return pages I have been working (I probably need to include this link on most of the pages!).
 * 2) Each provider page in this Vanguard source contains a methodology tab in the page sidebar and a summary of the provider's  methodology. Vanguard provides material for MSCI, S&P, and Russell. (Dow Jones and Morningstar are not included because Vanguard has no index fund benchmarked to these provider's indexes).
 * 3) The unbeatable tabular presentation of this material, however, is from Determining the appropriate benchmark: A review of major market indexes, this time in the appendix on page 13 and its tabular figure. We would have to add Morningstar decision factors to this table.


 * The ultimate value of this page will be to show that the return dispersions we see in index provider returns have much to do with how each provider carves up the market and decides which stocks go into the index. Naturally, it would be nice to find sources which discuss the ramifications of these differentials,(see pages 10-14 from The Case for Indexing, for example, which I have once again cited) rather than having us making original suppositions.
 * 1) Additional sources for this may be Rick's book All About Index Funds and we may be able to coax forum members into collaborating on this page, since Robert T. and others can perform Fama French regressions on the indexes and provide loadings (although this skirts the original research taboo.) They might also be tempted to discuss these results in layman's terms so that unsophisticated investors can grasp the meaning of the results.

General Discussion
Market cap graphic added. If this is too much detail, I can split it into 4 separate images. --LadyGeek 01:37, 22 April 2010 (UTC)

Added index methodology table from the appendix page 13 using Word to Wiki Converter. --LadyGeek 02:41, 22 April 2010 (UTC)

Multiple sidebars will get difficult to use when the lists are expanded. Try this layout, which seems much clearer (to me) and is easy to maintain. Delete the other tables and sidebars if OK. I removed the table width to let the borders grow with the text (readers work with various text sizes). --LadyGeek 01:57, 24 April 2010 (UTC)


 * After reading The Case for Indexing, I'm not sure on the intent of your collaboration. What additional analysis is needed? The paper contains the returns dispersions, what would be added? The paper is also clear to point out the assumptions used as well as short-comings of the analysis.


 * I'm all for discussions in layman's terms. Perhaps this page's value comes in the layman's terms explanations of how methodologies are used and the implications of the returns dispersions (vs. doing the analysis, which will be out of date in only a few months time). Of interest is the section "Debunking some misconceptions regarding indexing" (page 16). Another topic would be to define excess return and how it's used for this study. --LadyGeek 18:18, 25 April 2010 (UTC)

I'm thinking of adding content to the overview section. --LadyGeek 01:56, 26 April 2010 (UTC)


 * Fire away! One necessary addition would be a statement of fact recognizing S&P's "quirky" committee process vs. the "rules based" indexing methodology used by all other index providers. (Ultimately, this page might need to be split into a number of related pages depending on length). I will try a sketch (by necessity) of the US Total Market section, once I can find enough supporting documentation. --Blbarnitz 03:58, 26 April 2010 (UTC)

I reorganized the page, as this makes sense to me. Overview --> Funds --> Methodology. Please review the methodology section. --LadyGeek 21:13, 1 May 2010 (UTC)

Is this page ready to replace Stock Market Indexing? Although not finished, I think it's far better than the current page. --LadyGeek 20:43, 15 May 2010 (UTC)

Morningstar

 * Are the Morningstar Style indexes significant enough to be included? It seems that only Morningstar uses these indexes as Vanguard doesn't mention them, neither are they in the Callan Periodic Table (see below). Is it due to licensing issues, not enough time in the market, or that it's just not that popular?


 * ''Morningstar Indexes are investable (currently with approximately $5.1 billion of net assets) :
 * Morningstar Large Core Index Fund
 * Morningstar Large Growth Index Fund
 * Morningstar Large Value Index Fund
 * Morningstar Mid Core Index Fund
 * Morningstar Mid Growth Index Fund
 * Morningstar Mid Value Index Fund
 * Morningstar Small Core Index Fund
 * Morningstar Small Growth Index Fund
 * Morningstar Small Value Index Fund'' --Blbarnitz 03:58, 26 April 2010 (UTC)

The above links automatically redirect to isharesmobile.com, optimized viewing for a cell phone. No info was available there. Stock symbols from the above links: JKD, JKE, JKF, JKG, IWP, JKI, JKJ, JKK, JKL

The style maps are on the Morningstar site. I'm still not sure if Morningstar indexes should be mentioned in the context of this page update. --LadyGeek 02:58, 27 April 2010 (UTC)


 * The problem with the links was resolved. ishares.com does not recognize Linux in the FireFox header. No problem in Windows XP, except that cookies need to be enabled. Under Linux (Ubuntu), the web page redirected to isharesmobile.com. --LadyGeek 00:53, 28 April 2010 (UTC)

Future Performance

 * Would it be productive to mention The Callan Periodic Table of Investment Returns (Key Indices: 1990-2009), linked from here as a good reference for past performance does not predict future performance?. Morningstar has an equivalent chart: Periodic Table of Style Indexes, 30 September 2009.


 * Not really; a more apropos "periodic" chart would be one showing index provider returns for a given market segment, perhaps with an "average active fund" in the market segment also included. I have resorted to using Callan and other periodic tables as a means of finding fiendishly undivulged return figures for provider indexes. --Blbarnitz 03:58, 26 April 2010 (UTC)

Buffers
"Index providers, in attempts to make their indexes more easily investable for index funds, have adopted free-float weighting and buffer zones to their methodologies. ... Buffer zones were introduced to reduce the amount of turnover incurred as stocks migrate across market capitalization and style boundaries."
 * This statement sounds like all providers have buffer zones. Buffer zone appears to be a term used only by MSCI, S&P, and Morningstar's Methodology Overview. It's not defined in Investopedia. Some clarification is needed.


 * All major index providers now provide buffer zones. Please see:
 * The effect of banding on Russell Indexes
 * Dow Jones Size Segment and Style Indexes Methodology
 * Wilshire
 * FTSE UK Index Series rule 6.32 and rule 6.33.--Blbarnitz 03:58, 26 April 2010 (UTC)

My confusion is both due to terminology (buffer / banding) and that the Vanguard Benchmark site does not mention buffers / banding for the Russel index or FTSE. An observation - Vanguard does not describe products it does not sell, e.g. Wilshire is not listed.

FTSE uses a fixed threshold (6.3.2, 6.3.3), but I think there is additional weighting, as 6.3.7 is an algorithm to maintain a constant number of funds. I don't see where there is any overlap between between the index styles.

--LadyGeek 02:58, 27 April 2010 (UTC)
 * Wilshire's methodology which describes buffers: Wilshire U.S. Style Indexes: A Methodology Overview, from Index Introduction Research

Are the Barclays Capital (former Lehman Brothers) indices worth mentioning? My employer's 401(k) plan uses some index funds tracking Barclay aggregate indices. I'm sure there are a lot more that could be added, but I don't have any idea if Barclays could be considered a "major" index.
 * Barclays Capital Index Products--LadyGeek 02:08, 30 May 2010 (UTC


 * The Barclays indexes are bond market indices. These would need to be worked into our Bond Market Indexing page, which would need to be restored. --Blbarnitz 11:29, 30 May 2010 (UTC)

Bond Market Indexing restored. --LadyGeek 00:15, 31 May 2010 (UTC)

Style boxes appeared to be mixed within the same context as strategy boxes. I separated them, with some additional strategy box background. --LadyGeek 20:18, 8 October 2010 (UTC)