Custom Indices - Best way to calculate?

What type of index is most representative:

  • No weighting - all stocks equal

    Votes: 2 100.0%

  • Market Cap weighting - based on the market cap of each stock in the index to the market cap of the i

    Votes: 0 0.0%

  • Volume traded weighting - based on the avg number of shares traded on a daily basis

    Votes: 0 0.0%

  • Avg Value traded weighting - the avg value traded (as calculated by avg daily shares * most recent c

    Votes: 0 0.0%

  • Other

    Votes: 0 0.0%
  • Total voters
    2
Quote from cashonly:

It's more to create indices of specific sub-industries that don't already have an index. For example an athletic shoes IDX would have NKE, RBK, FL, and some others.
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I see. I don't think your will get a clear advice with what weighting to go ; its really up to you. You also must have an upfront rules how to handle future additions/delisting ( and this is not so easy as its sounds). Here are some scenarios :
1. Buyouts and mergers
2. Add new
3. Delete existing
4. Dividends ( for total return)

BTW , never heard of volume weighting.
 
Quote from IV_Trader:

BTW , never heard of volume weighting.
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I was thinking that it would give more weighting to stocks that are in play more than usual. Just a thought.
 
Quote from cashonly:

That sounds like money in the bank. Is it equal weighted or is it mkt cap based? (or something else?) do you trade SMH based on it?
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Equal weighting; top 10% of the components are chosen by market cap. Right, SMH and tech indices.
 
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