Which index type is best for measuring the rate of return of an asset class?
Explanation
For long-term performance measurement, ignoring income (dividends) distorts the result significantly.
Other questions
What is the primary difference between a price return index and a total return index?
In a price-weighted index, which of the following securities has the greatest influence on the index value?
Which weighting method assumes the investor holds an equal dollar amount of each constituent security?
Which of the following statements regarding the rebalancing of a market capitalization-weighted index is most accurate?
Consider a price-weighted index with three stocks priced at 10, 20, and 90. What is the weight of the third stock?
A fundamental weighted index is most likely to weight securities based on:
Which index construction method requires the divisor to be adjusted when a stock split occurs?
Fixed income indexes typically have higher turnover than equity indexes primarily because:
What is a potential issue with using equal weighting for a security market index?
In the context of index management, what is 'reconstitution'?
Real estate indexes are often constructed using:
Which of the following is a characteristic of hedge fund indexes?
Commodity indexes are typically based on:
A 'float-adjusted' market capitalization weighting involves:
If a security is added to an index during reconstitution, its price typically:
Which of the following biases is most associated with real estate indexes based on appraisals?
Calculate the price return for a price-weighted index if the sum of prices starts at 100 and ends at 110.
Which index weighting method is also known as 'value-weighted'?
What is the primary disadvantage of a price-weighted index?
In a market capitalization-weighted index, a security's weight is determined by:
Given the following returns for three stocks in an equal-weighted index: 10%, -5%, and 25%. What is the index return?
Which of the following is a key use of security market indexes?
A contrarian 'value' strategy is most naturally implemented using which weighting method?
Which type of equity index measures the returns of a specific industry, such as pharmaceuticals?
The price of a security added to an index usually increases. What happens to the price of a security deleted from an index?
Which asset class index typically relies on dealer bid-ask quotes rather than exchange transaction data?
Calculate the return of a market-cap weighted index. Total Market Cap at t=0 is 500 million. Total Market Cap at t=1 is 550 million. No dividends.
What is 'survivorship bias' in the context of hedge fund indexes?
Why must the divisor in a price-weighted index be adjusted?
An index that uses 'multi-market' equity refers to:
Which weighting scheme is most likely to result in a portfolio with a 'value' tilt?
Security A has a price of 10 and 100 shares. Security B has a price of 50 and 10 shares. In a price-weighted index, which security has the higher weight?
In the same scenario (A: Price 10, Shares 100; B: Price 50, Shares 10), which has the higher weight in a market-cap weighted index?
Which index type acts as a measure of 'market sentiment'?
What is a 'Style Index'?
If an equal-weighted index is not rebalanced, what happens if one stock doubles in price while others stay flat?
A 'Sector Index' is useful for:
Which of the following describes a 'High Yield' fixed income index?
What is the 'backfill bias' in hedge fund indexes?
In a price-weighted index, if Stock A (Price 100) and Stock B (Price 10) both increase by 10%:
What does a 'momentum' anomaly in index pricing suggest?
How is the return of an equal-weighted index calculated?
Which of the following is an example of an alternative investment index?
What happens to the divisor of a price-weighted index if one of its stocks is replaced by another stock with a lower price?
Which index weighting method most closely mimics the return of a momentum strategy?
What is the primary risk of a fixed-income index that includes a large number of illiquid securities?
A 'Total Return' index value will be lower than a 'Price Return' index value:
Calculate the return of a price-weighted index. Stock A goes 10->12. Stock B goes 20->18. Divisor is 2.
What does a 'broad market index' typically represent?