Index Construction & Methodology

This unique two-day course looks at all aspects of index construction for equity and non-equity markets. It includes detailed coverage of index replication, valuation, rebasing and weighting, and includes content on the impact of regulatory issues. This course is designed for fund managers, hedge funds, traders and analysts.

Duration: Two days (9.00am to 5.00pm)
Location: In-house
Trainer: Andrew Harvell
Please contact us for a quotation

Course Outline


+ What is an index?
+ Uses and history
+ Well known indexes

What makes a good index?

+ Governance, Independence and Transparency
+ Representativeness
+ Consistency
+ Ease of Replication

Index Construction

+ Index Features
+ Different calculation types e.g. geometric and arithmetic means
+ Base Currency, Base Date, Base Value
+ Index Ground Rules
+ Review Timetable - determining frequency of the rebalance
+ Fixed or Variable Number of Constituents
+ Assessing the Investable Universe
+ Country, Regional, Value/Growth, Low/High Div Yield
+ Top Down vs. Bottom Up
+ Industry Classification Schemas e.g. GICS/ICB
+ Sector Representation
+ Price Sources - where's the volume of shares traded?
+ Liquidity Measures
+ Free Float
+ Buffers and Reserve Lists
+ Index Turnover vs. Returns
+ Limiting Turnover
+ Total Return and Excess Return Indices

Index Management

+ Effects of Corporate Actions
+ Dividends, Taxation and Total Returns
+ Rebasing
+ Restating Index Values

Weighting methods for Equity Indexes

+ Market cap vs. Equal Weight vs. Price Weighted
+ Alternative Weighting Schemes
+ Capping
+ Currency Hedging

Index Level Valuation Measures

+ DY, PE, Volatility, Alpha, Beta
+ Sharpe & Information Ratios, Max Drawdown, Period Performances, Benchmarking
+ Concentration and Diversification
+ Contribution Analysis showing where the index returns come from
+ Attribution Analysis - does the index have small cap tilt or does it show value / growth attributes

Financial Products based on Indices

+ Tracker Funds, Structured Products and ETFs/ETPs
+ Replication Methods e.g. Physical or Derivative Based

Non-Equity Indexes

+ Investment Strategy based e.g. Short and Leveraged, Hedge Fund
+ Risk Target Indices
+ Fixed Income
+ Weather
+ Commodity Indexes e.g. S&P/GS Commodity Index, FTSE Physical Commodity Index
+ Currency Indexes e.g. FTSE Currency FRB, Sterling Index
+ Inflation Indexes
+ Interest Rate Indexes
+ House Price Indexes e.g. Schiller, Halifax, Nationwide
+ Commercial Property
+ Volatility Indexes - VIX "The fear indicator"

Regulatory Environment and Indexes


Future Indexes