Indexes

In this lecture we describe what is meant by ‘free float’ stock, how it is defined, why it is a useful measure, and where it is used by index construction companies and exchanges for different purposes.

We explain why free float capitalisation is different from total market capitalisation and which three groups are placed into the ‘non-free float’ category.

The full YouTube playlist of Securities Investment 101 lecture videos can be found by clicking here.

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In this lecture we create two different indexes from the same initial company information.

The first index is a price-weighted index, which rises, due to the disproportionate effect of large share price changes in small companies.

The second index is a market-capitalisation-weighted index, which falls, due to the disproportionate effect of share price falls in large companies.

After discussing the mechanism between the construction of the two major index types, the lecture also briefly mentions total return indexes, price return indexes, net price return indexes, and a small reference to the concept of a free float.

The Excel Library video mentioned in this lecture, to help comment Excel cells with their formulas, can be found here:

The full YouTube playlist of Securities Investment 101 lecture videos can be found by clicking here.

Please read our disclaimer.

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Introduction to Stock Indexes, Lecture 005, Securities Investment 101

May 29, 2013

Moving on from types of share, this is the first of two lectures introducing indexes. In the second lecture, we will concentrate on the construction of indexes. In this first lecture, we will cover the major purposes of stock indexes and discuss several of the key global indexes, such as the Dow Jones index, the […]

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