How can I convert the indices in terms of dollars? My economics professor asked me to convert the equity market returns of certain countries in terms of dollars. I do not know how I can do ... Can someone explain?
To convert stock indices in dollars, you need to know the number of shares on each index. This will be the hardest part of your research. However, the formula is easy, as I have below.
Number Index Level = Σ (share price of shares *) * float factor / index divisor.
* The float adjustment factor is the proportion of shares that is freefloated percentage of issued and then rounded to the nearest Mulitple 5% for the calculation. To find the free float of a company, first find its market capitalization (number of outstanding shares x share price) then multiply the float factor. The free-float method, therefore, does not include restricted stocks, such as those held by insiders of the company.
If you can track the value of the dollar portfolio, it would probably be a heavy number - for example, the S & P 500 is the market value of about 10.3 trillion U.S. dollars. Rather than deal with more than ten digits, the figure is reduced to a number easier to handle, currently from 1093 to 11/13/09. By dividing the market value of the portfolio of a factor, usually called the index divisor, does the scaling.
I hope you get an "A" for your note.
Posted on February 12, 2010.
