NYSE Composite Index - Explained
What is the NYSE Composite Index?
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Table of ContentsWhat is the NYSE Composite Index?How Does the NYSE Composite Index Work?How the NYSE Composite Index Is Operated and Maintained
What is the NYSE Composite Index?
The NYSE Composite Index refers to an index that calculates the performance of every stock listed on the New York Stock Exchange. The NYSE Composite Index comprises over 1,900 stocks, of which about 1,500 are U.S. companies. Its breadth hence, makes it a better market performance indicator than narrow indexes which have fewer components. The weights of the index constituents are measured based on the total return and price return, which includes dividends.
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How Does the NYSE Composite Index Work?
The NYSE Composite Index comprises every stock listed on NYSE, including American Depositary Receipts, foreign stocks, tracking stocks, and real estate investment trusts. The index excludes ETFs, closed-end funds, derivatives, and limited partnerships. The two major benefits to investors of the NYSE Composite Index include (a) its quality, since every of its constituent has to meet the exchanges strict listing requirements, as well as, (b) its global diversification, with non-US companies accounting for more than one-third of market capitalization. Foreign companies listed on the New York Stock Exchange have their headquarters in thirty-eight different countries, having its most foreign issuers from countries such as Japan, Mexico, China, Canada, and the U.K.
How the NYSE Composite Index Is Operated and Maintained
According to the NYSE, its composite index was established initially in 196. In 2003, it was reintroduced using new technology which in conformity with index methodology applied by renowned broad-based U.S. Indexes. Currently, the Dow Jones Indexes calculates and maintains the NYSE Composite. Previously, it was the Securities Industry Automation Corp that was responsible for the calculation of the Composite Index. Under the current methodology, the composite index doesn't consider various security classes eligible for inclusion: ETFs, derivatives, preferred stocks, closed-end funds, trust units, limited partnerships, and shares of beneficial interest. The last trading price of the added securities is applied for calculating the composite index. Maintenance comprises constant monitoring and adjustments made for companies which are either included or deleted from the index and also other actions including corporate restructuring, stock splits, and spinoffs. Certain companies actions, like stock dividends and stock splits, might request simple changes to be effected in the composite index to account for common shares outstanding and stock prices for the companies included. An index divisor adjustment may be needed for other forms of activities, including shares issuing, which results in changes of the aggregate free-float adjusted market capitalization of the composite index.