Reading 56: Security Market Indices-LOS d 习题精选 2011, face, different, recently, contrast

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Session 13: Market Organization, Market Indices, and Market Efficiency
Reading 56: Security Market Indices

LOS d: Compare and contrast the different weighting methods used in index construction

 

 

Assume a stock index consists of many firms who have recently split their stock. Which of the following weighting schemes will see a bias due to the impact of stock splits?

A) Unweighted price series.

B) Market value-weighted series.

C) Price-weighted series.

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Firms that split their stock price will have the identical weight before and after the split in both the unweighted and the market value-weighted series. However, in the price-weighted series, large successful firms will lose weight within the index due to simply splitting their stock. This creates a downward bias in a price-weighted series. Standard and Poor’s 500 Index is a market value-weighted index.

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Which of the following statements best describes the investment assumption used to calculate an equal weighted price indicator series?

A) An equal number of shares of each stock are used in the index.

B) An equal dollar investment is made in each stock in the index.

C) A proportionate market value investment is made for each stock in the index.

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An equal weighted price indicator series assumes that an equal dollar investment is made in each stock in the index. All stocks carry equal weight regardless of their price or market value.

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In a market-capitalization weighted index firms with:

A) higher stock prices have greater impacts on the index.

B) larger market caps have lesser impacts on the index.

C) greater market caps have greater impacts on the index.

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In a value weighted index, firms with greater market caps have a greater impact on the index than firms with lower market caps. A higher stock price does not necessarily mean a higher market cap.

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Which of the following statements about indexes is CORRECT?

A) A market weighted series must adjust the denominator to reflect stock splits in the sample over time.

B) A price-weighted index assumes an equal number of shares (one of each stock) represented in the index.

C) An equal weighted index assumes a proportionate market value investment in each company in the index.

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The descriptions of value weighted and unweighted indexes are switched. The denominator of a price-weighted index must be adjusted to reflect stock splits and changes in the sample over time. A market value-weighted series assumes you make a proportionate market value investment in each company in the index.

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With regard to stock market indexes, it is least likely that:

A) the use of price weighting versus market value weighting produces a downward bias on the index.

B) buying 100 shares of each stock in a price-weighted index will result in a portfolio that tracks the index quite well.

C) a market-cap weighted index must be adjusted for stock splits but not for dividends.

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A price-weighted index needs to be adjusted for stock splits, but a market-cap weighted index does not. Neither type of index considers dividend income unless it is designed as a total return index.

Price weighting produces a downward bias compared to market weighting because firms that split their stocks (which tend to be the more successful firms) decrease in weight within a price-weighted index. The returns on a price-weighted index can be matched by purchasing a portfolio with an equal number of shares of each stock in the index.

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Which of the following weighting schemes will produce a downward bias on the index due to the occurrence of stock splits by firms in the index?

A) Price-weighted series.

B) Market-cap weighted series.

C) Equal weighted price indicator series.

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The price-weighting scheme sums the market price of each of the stocks contained in the index and then divides this sum by the number of stocks in the index. Thus if a firm executes a stock split thereby reducing its share price, this will cause a downward bias in the index.