Why are indexes important ?
Traditionally, indexes have been used as information sources. By looking at an index we know how the market is faring. This information aspect also figures in myriad applications of stock market indexes in economic research. This is particularly valuable when an index reflects highly uptodate information (a central issue which is discussed in detail ahead) and the portfolio of an investor contains illiquid securities – in this case, the index is a lead indicator of how the overall portfolio will fare. In recent years, indexes have come to the fore owing to direct applications in finance, in the form of index funds and index derivatives. Index funds are funds which passively `invest in the index’. Index derivatives allow people to cheaply alter their risk exposure to an index (this is called hedging) and to implement forecasts about index movements (this is called speculation). Hedging using index derivatives has become a central part of risk management in the modern economy. These appl
Traditionally, indexes have been used as information sources. By looking at an index we know how the market is faring. This information aspect also figures in myriad applications of stock market indexes in economic research. This is particularly valuable when an index reflects highly uptodate information (a central issue which is discussed in detail ahead) and the portfolio of an investor contains illiquid securities in this case, the index is a lead indicator of how the overall portfolio will fare. In recent years, indexes have come to the fore owing to direct applications in finance, in the form of index funds and index derivatives. Index funds are funds which passively invest in the index . Index derivatives allow people to cheaply alter their risk exposure to an index (this is called hedging) and to implement forecasts about index movements (this is called speculation). Hedging using index derivatives has become a central par of risk management in the modern economy. These applicat
