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MSCI July05 IndexCalcMethodology final - sbl52.com

Methodology Book MSCI Index Calculation Methodology Last Updated on July 11, 2005 Index Calculation Methodology Notice and Disclaimer Copyright 2005 by Morgan Stanley Capital International Inc. ("MSCI"). All rights reserved. This document and all of the information contained in it, including all text, data, graphs, charts and all other information (collectively, the Information ) may not be reproduced or redisseminated in whole or in part without prior written permission from MSCI. Any use of MSCI indices, data or other information requires a license from MSCI. The Information is for informational purposes only and does not form a part of the terms or conditions of any agreement you have or may enter into with MSCI. The Information may not be used to verify or correct other data, to create indices, or in connection with offering, sponsoring, managing or marketing any securities, portfolios, financial instruments or products.

2 Index Calculation Methodology 1 Introduction to MSCI Index Calculation Formulas The MSCI equity indices measure the performance of a set of equity securities over time.

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Transcription of MSCI July05 IndexCalcMethodology final - sbl52.com

1 Methodology Book MSCI Index Calculation Methodology Last Updated on July 11, 2005 Index Calculation Methodology Notice and Disclaimer Copyright 2005 by Morgan Stanley Capital International Inc. ("MSCI"). All rights reserved. This document and all of the information contained in it, including all text, data, graphs, charts and all other information (collectively, the Information ) may not be reproduced or redisseminated in whole or in part without prior written permission from MSCI. Any use of MSCI indices, data or other information requires a license from MSCI. The Information is for informational purposes only and does not form a part of the terms or conditions of any agreement you have or may enter into with MSCI. The Information may not be used to verify or correct other data, to create indices, or in connection with offering, sponsoring, managing or marketing any securities, portfolios, financial instruments or products.

2 None of the Information constitutes an offer to buy or sell, or a promotion or recommendation of, any security, financial instrument or product or trading strategy, and MSCI does not endorse, approve or otherwise express any opinion regarding any issuer, securities, financial products or instruments or trading strategies that may be described or mentioned herein. Further, none of the Information is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The user of the Information assumes the entire risk of any use it may make or permit to be made of it. In particular, historical data should not be taken as an indication or guarantee of any future performance, analysis or prediction. NEITHER MSCI, ANY OF ITS AFFILIATES OR ANY OTHER THIRD PARTY INVOLVED IN MAKING OR COMPILING ANY OF THE INFORMATION MAKES ANY EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE INFORMATION (OR THE RESULTS TO BE OBTAINED BY THE USE THEREOF), AND MSCI, ITS AFFILIATES AND EACH SUCH OTHER THIRD PARTY HEREBY EXPRESSLY DISCLAIM ALL IMPLIED WARRANTIES (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF ORIGINALITY, ACCURACY, TIMELINESS, NON-INFRINGEMENT, COMPLETENESS, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE) WITH RESPECT TO ANY OF THE INFORMATION.

3 Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any other third party involved in making or compiling any of the Information have any liability regarding any of the Information for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. Morgan Stanley Capital International, MSCI , ACWI, EAFE and all other service marks referred to herein are the exclusive property of MSCI or its affiliates. The Global Industry Classification Standard (GICS) was developed by and is the exclusive property of MSCI and Standard & Poor s. Global Industry Classification Standard (GICS) is a service mark of MSCI and Standard & Poor s. All MSCI indices are the exclusive property of MSCI and may not be used in any way without the express written permission of MSCI.

4 - i - Index Calculation Methodology Table of Content 1 INTRODUCTION TO MSCI INDEX CALCULATION 2 INTRODUCTION TO MSCI DAILY TOTAL RETURN (DTR) MSCI DTR DTR indices calculated by Timing of Re-Investment Dividends reinvested in the DTR Dividends that can result in a reinvestment in the DTR indices or in a price NUMBER OF INDEX WEIGHTING PROCESSING Dividend Corporate Payment Late Country 3 ALTERNATIVE INDEX GROSS DOMESTIC PRODUCT (GDP) WEIGHTED DAILY HEDGED Daily Hedged Indices based on 1-Month Calculation of Odd-Days Forwards Using a Linear Daily Hedged Index Calculation Daily Hedged Index 4 FOREIGN EXCHANGE CLOSING SPOT FORWARD 5 OTHER WHAT IS THE DIFFERENCE BETWEEN THE MSCI SINGAPORE AND MSCI SINGAPORE FREE, MSCI EAFE AND MSCI EAFE FREE, MSCI WORLD AND MSCI WORLD FREE INDICES?..17 WHAT IS THE DIFFERENCE BETWEEN THE MSCI ISRAEL DOMESTIC AND MSCI ISRAEL NON-DOMESTIC INDICES?

5 17 MSCI SINGAPORE/MALAYSIA, MSCI MALAYSIA AND MSCI SINGAPORE: A HISTORY OF INCLUSION IN THE MSCI DM AND EM - ii - Index Calculation Methodology Stock MSCI The Asian Quick APPENDIX I: WITHHOLDING TAX APPENDIX II: CLOSING PRICES APPENDIX III: INCLUSION OF COUNTRIES IN MSCI REGIONAL 1 Index Calculation Methodology Introduction This methodology book describes MSCI s general index calculation methodology, as well as alternative index calculations, such as MSCI s Daily Hedged Indices or Daily Total Return (DTR) Indices. These policies and guidelines affect all securities across all the MSCI Equity Index Series and products. Unless otherwise stated the policies and guidelines apply therefore to all securities in the MSCI universe. Please note that the index construction methodology and other guiding principles for the MSCI Standard Index Series can be found in MSCI s Standard Index Series methodology book, available at 2 Index Calculation Methodology 1 Introduction to MSCI Index Calculation Formulas The MSCI equity indices measure the performance of a set of equity securities over time.

6 The MSCI Indices are calculated using the Laspeyres concept of a weighted arithmetic average together with the concept of chain-linking. Price indices measure market price performance only, and are calculated at least on a daily basis. Each index measures the sum of the market capitalization weighted returns of all its constituents on a given day. MSCI national and regional indices are calculated in local currency as well as dollars. Index levels are also available in several other currencies such as GBP, EUR, JPY, etc. While the local currency series of regional indices cannot be replicated in the real world, it represents the theoretical performance of an index without any impact from foreign exchange fluctuations a continuously hedged portfolio. The general expression of the indices is set forth below. The previous period s index level is multiplied by the change in the market performance.

7 A Price Index is calculated as follows: ttttUSDeviousMCapUnadjAdjMCapUSDvelUSDic eIndexLevelUSDiceIndexLePr*PrPr1 = ttttUSDeviousMCapUnadjLocalAdjMCapForvel LocaliceIndexLevelLocaliceIndexLePr*PrPr 1 = Where: 1Pr tvelUSDiceIndexLeis the Price Index level in USD at time t-1 tAdjMCapUSDis the Adjusted Market Capitalization of the index in USD at time t tUSDeviousMCapUnadjPris the Unadjusted Previous Market Capitalization of the index in USD at time t 1Pr tvelLocaliceIndexLe is the Price Index level in local currency at time t-1 tLocalAdjMCapForis the Adjusted Market Capitalization of the index in USD converted using fx rate as of t-1 and used for local currency index at time t The market capitalizations to be used in index calculation are calculated as follow: = =NittttttFXratePAFactorInclusionFeicePer ShararesNumberOfShAdjMCapUSD11**Pr* 3 Index Calculation Methodology )**Pr*(1111 = =ttNittttttICIICIFX ratePAFactorInclusionFeicePerShararesNum berOfShLocalAdjMCapfor = =NitttttFXrateactorInclusionFeicePerShar aresNumberOfShUSDeviousMCapUnadj1111*Pr* Pr Where: 1 taresNumberOfSh is the number of shares of security i at time t-1.

8 TeicePerSharPr is the price per share of the security i at time t. 1Pr teicePerShar is the price per share of security i at time t-1. tactorInclusionF is the inclusion factor ( Foreign Inclusion Factor, Domestic Inclusion Factor) of the security i at time t. tPAF is the Price Adjustment Factor of the security i at time t. tFXrate is the fx rate of the price currency of security i vs USD at time t-1. It is the value of 1 USD in foreign currency. 1 tFXrateis the fx rate of the price currency of security i vs USD at time t. It is the value of 1 USD in foreign currency. tICI is the Internal Currency Index of price currency at time t. The ICI is different than 1 when a country changes the internal value of its currency ( from Turkish Lira to New Turkish Lira ICI = 1,000,000). 1 tICI is the Internal Currency Index of price currency at time t-1. Note: The only difference in the formulas between USD and local currency indices calculation is that the same exchange rate is used in the numerator and denominator for local currency, which means that there is no impact of currency change in the performance.

9 Time variant exchange rates are used for the USD calculation. Initial security weights (in %) to be used for the next day index calculation are calculated as follows: 100*)*Pr*(*Pr*1111 =+++=NitttttttttFXrateactorInclusionFeic ePerShararesNumberOfShFXrateactorInclusi onFeicePerShararesNumberOfShturityWeighI nitialSec Where: taresNumberOfSh is the number of shares of security i at time t. teicePerSharPr is the price per share of the security i at time t. 1+tactorInclusionF is the inclusion factor ( Foreign Inclusion Factor, Domestic Inclusion Factor) of the security i at time t+1. 4 Index Calculation Methodology tFXrate is the fx rate of the price currency of security i vs USD at time t. It is the value of 1 USD in foreign currency. The list of index constituents as of time t+1 should be considered in the calculation. Closing Market Capitalization today USD (or Unadjusted Market Cap today USD) The value of the index market capitalization as of the close of a day can be calculated as follows: ==NitttttFXrateactorInclusionFeicePerSha rharesgNumberOfSCloUSDgMarketCapClo1*Pr* sinsin Where tharesgNumberOfSClosin is the number of shares of security i at the close of t.

10 TeicePerSharPris the security price per share of security i at time t. tactorInclusionF is the inclusion factor ( Foreign Inclusion Factor, Domestic Inclusion Factor) of the security i at time t. tFXrate is the fx rate of the price currency of security i vs USD at time t. It is the value of 1 USD in foreign currency. The list of index constituents as of time t should be considered in the calculation. Effectively this figure represents the shares at the close on t, and does not include any of the effects of corporate actions due at the open of the market the next day. The closing market capitalization uses today s price, t, as it represents the market capitalization at the close of the calculation day t. 5 Index Calculation Methodology 2 Introduction to MSCI Daily Total Return (DTR) Methodology Total return indices measure the market performance, including price performance and income from dividend payments.


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