Indices provides the market players to gain an insight into the performance of various asset classes and a plethora of financial instruments. Let’s have a closer look at types of indices in Australia:
Capitalization Indices: This index is a form of equity market indices. These indices represent an aggregation of the market capitalizations of those companies with which the market index is comprised of. Any change in the value index is a reflection of the change in the market prices of its constituents’ stocks. The weights which are assigned to the stocks of a company in the index depends upon the market capitalization of that company, and hence larger companies are assigned greater portfolio weighing as compared to the smaller companies.
Franking Credit Adjusted Indices: This Index tracks and provides a measure of the after-tax profit performance of the Australian Stocks. This aids the market players in tracking the tax effectiveness of superannuation funds and tax-exempt investors.
Fixed Income Indices: These are those indices which gauge the performance of the Bond markets as well as the money market instruments floated by the issuer to full fill their near term & short-term funding requirements. The Australian Fixed Income Index Series serves as the most broad-based composite which comprises of the investible bonds in the Australian fixed income markets. The index is of use by the institutional investors, superannuation funds and professional advisors.
Residential Property Indices: This index is just like any other index which is being in existence for any other asset class & tracks the changes in its market value, it’s just that the impugned asset, in this case, is the residential property. The index is used prevalently to calculate the historical return derived from the residential asset at a given particular location over a specified period of time. This index is of special interest to the asset managers investing in the Alternative investments so as to diversify their portfolio and mitigate the portfolio risks, existing and potential property owners, economists, developers & property commentators.
Sector Indices: Sectoral indices tracks a specific sector, such as oil & gas and helps the market players to track a specific stock’s performance over a period as a comparison to the sector to which that stock belongs to. A company is allocated a sector or industry which is based upon the principal business activity undertaken by that company and hence the companies which have a congruence in term of the business activities undertaken by them are grouped to form a sectoral index.
Strategy Indices: This index tracks the performance of well-established trading & investment strategies prevailing in the market. It reflects the performance of the various traditional rule-based strategy. These strategies may involve heavy use of options and other prominent financial instruments in the market in order to generate alpha.
Volatility Indices: Also, prevalently called & known as VIX S&P/ASX 200 VIX (A-VIX), is the indicator of the implied volatility in the markets and is also a market sentiment indicator and monitor the near-term volatility which is expected in the Australian stock markets i.e. volatility in the S&P/ASX 200 over the next 30 days.
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