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4)- US Stock Market information

Information about changes in stock prices is of two types: composite indexes which are calculated virtually continuously throughout trading days and historical data of stock market behavior. All business publications, brokerage firms, investment companies and major banks publish an assortment of stock market price data. A number of newsletters and chart services offer advice based on analysis of the historical data.

a)- Composite stock market indexes

There are at least ten indexes regularly published in the financial press, of which the following five are most widely quoted and followed.
- Dow Jones Industrial Average (DJIA) is the oldest and most often quoted index. It is a price-weighted average, and is calculated as the sum of 30 stock prices of "blue chip" (i.e. major) corporations, divided by a divisor, which initially in 1928 was 30, but which has been adjusted downward with each stock split to allow comparison over the years. The selection of the 30 stocks has changed over the years to reflect dominant industries and companies of the time. In addition to DJIA, three other averages are calculated: DJTA for 20 transportation companies, DJUA for 15 utilities companies, and DJCA for a composite of all 65 above companies.
- Standard & Poor publishes six different indexes: S&P 500 for 500 major corporations is the best known, others are for 400 industrial companies, 20 transportation companies, 40 utility companies, 40 financial companies and 400 midcap (medium capitalization or medium size) companies. Each index I is calculated as a value-weighted index with a base value of 10 in the initial period of 1941 to 1943 with the formula

I_t = (Sum(P_it . Q_it) / Sum( P_io . Q_io) ). 10

where

P_it = price of stock i at time t
Q_it = number of shares outstanding of stock i at time t
P_i0 = price of stock i in base period
Q_i0 = number of shares outstanding of stock i in base period (1941-1943)

- New York Stock Exchange composite index is calculated as a value-weighted index including all (i.e. approximately 2,400) stocks traded on the exchange with a base value of 50 in the initial year of 1965. Composite indexes are also calculated by the New York Stock Exchange for industrial, transportation, utility and financial stocks. See http://www.nyse.com/.
- NASDAQ (National Association of Securities Dealers Automated Quotation) composite index is a value-weighted index of 4,200 securities traded over the counter, with base value of 100 in initial year of 1971. There are nine other NASDAQ composite indexes for groups of stocks similar to those above. See http://www.nasdaq.com/.
- AMEX (American Stock Exchange) composite index is a value-weighted index with a base value of 100 in 1973.
- Value Line Index is an equally-weighted geometric mean of close to 1,700 stocks of major corporations started in 1963. As a geometric mean, this index is the most precise reflection of rate of price growth.
- Wilshire 5000 is a composite of the largest 5,000 company stocks.

- Russell 2000 is a composite of small capitalization stocks.

b)- Other market statistical indicators
- volume of transactions
- number of advances and declines (also known as breadth of market when stated as a ratio, see Chapter 5 Section J-2c)
- new highs and new lows
Company risk measured by BETA coefficients (discussed in Chapter 2 Section E-1) are compiled and published by Value line, Goldman Sachs, Merrill Lynch and BARRA on-line http://www.barra.com/ , as well as many other brokers and banks. Banks and brokerage firms also publish their own market statistics and analysis. One of the most important is that of Solomon Brothers on money markets reporting on bonds, yields and yield spreads.

c)- Historical market data
Each of the major exchanges: NYSE (visit http://www.nyse.com/) and NASDAQ which merged with AMEX (visit http://www.nasdaq.com/ and http://www.otcbb.com/dynamic/) publish annual "Factbooks" in which the major events and the overall activity of the exchange is analyzed and reported with supporting data and graphs. For strictly statistical information, it is available from each of the sources that compile the data in the first place (i.e. Dow Jones Company, S&P, etc.), and is widely published in the press. Another source of useful historical statistical data is Ibbotson Associates which publishes rates of returns on stocks, bonds and government securities with a initial period of 1926, see for instance Table T-2.1. Computerized data on prices, trading volume and certain earnings, for traded stocks mostly on the NYSE, is available from Value Line Investment Services, Interactive Data Corporation at http://www.intdata.com/ (part of Financial Times Information) and the Center for Research in Securities Prices (with participation of University of Chicago).

For those engaged in technical analysis (introduced in Chapter 4 Sectin F-1 and outlined in Chapter 5 Section J), the most extensively used source is "Daily Action Charts" available from Trendline, others are "Technical Trends" and "Daily Graphs On-line" at http://www.dailygraphs.com/. BigCharts.com at http://www.bigcharts.com/ provides daily price quotes going back as far as 1956 on all traded stocks on major exchanges and links to all brokers' reports relating to each company.

See review questions Q-1D4.1 to Q-1D4.8

See research assignments R-1D4.1, R-1D4.2, R-1D4.3 and R-1D4.5.

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