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Arguments for the Creation of a Global Stock Index

In an increasingly globalizing world where more and more companies beyond the dominant American markets are becoming key contributors to a global stage, it makes sense for the measurements of world economy to begin to follow the trend.  Current barometers of global economy are still separate and make it difficult to make a general assessment at a glance.  While the usefulness of the established indices is not challenged, the proposal of a beneficial companion to them is discussed.

With national economies around the world taking steps to cope with and inspire globalization and social expansion, yesterday’s methods of measuring the state of the world economy will soon demand reforms.  The most important change is the creation of a world stock index of meaningful and accurate representation of the state of the many influential markets across the globe; an index that would be representative of the changing face of global economic influences and adaptable to recent global trends.

Such and index would include model and representative companies from a broad range of the world markets rather than simply the largest.  It would be an accurate index, recognizing the shift in global economic trends in which economic powers beyond the United States of America are playing a large role in defining current indexes.  Diminished are the days when the world’s prosperity could easily be measure by the successes and failures of the blue chip companies, elite market indexes and the state of the American economy. With European markets becoming increasingly active, partially fuelled by growing cooperation, mergers and acquisitions between American and European companies compounded with the double digit quarter growth and influence of the Chinese economy, a more inclusive measurement of public markets would be beneficial to investors.  While the current separate indexes are far from irrelevant, they are often fail to represent the broader market, showing in large part the ailing blue chip stocks of the US market which are under achieving in comparison to many younger trend setting stocks.  A new world index would be similar to the benchmark S&P 500, 400 and 600, including companies of all sizes internationally.

One Possible Method of Selecting Companies for an Index:

  • The relative stability of all world markets would first be assessed based on identifying the quality and durations of flows and trends in each market in a recent 5 – 10 year period sampling.  Markets with stable periods of increase and decrease would be qualified as markets with stocks that are capable of participation in an index.
  • The stocks that are noted as the trend-setters of the chosen markets would be selected.  This would be defined by determining the stocks that consistent out perform other stocks in the market in relative percentiles.
  • The selected stocks would be ranked in a weighted average with a diminishing amount chosen per 10th percentile. (ie. 10 from the 90-99%, 9 from the 80-99% 8 from the 70-79% etc.)

The above method is one rudimentary means of constituting the installation of a world index.  The maintenance of the index would involve removing components which have delisted, destabilized or severely degraded in price or volume for a considerable amount of time.  Similarly, components that prove to be long standing and new market definers, out performing at least 50% of the stocks in the index at the time would be included.  The index would therefore be in continuous evolution to remain in the spotlight as a reliable method accessing the state of the world’s defining stocks and markets.

One of the major keys of maintaining accurate representation in the index is that there are no quotas necessary besides having at least one (1) representative stock from each of the markets deemed “stable” in the initial assessment.  This not only serves to produce a balanced illustration of the world economy but spurs interest and competition among the smaller markets to out perform each other and to have a benchmark of uniform comparison by which goals can be set to outperform larger markets and companies.  Healthy and valuable competition such as this almost eliminates the need for the indexes of the day, many of which represent a culture of elitism in the larger markets.

The benefits of world index are incalculable as it would not only stimulate competition as described before, but it would make investors more aware of their choices on a global scale, redefining the way that individuals invest by giving them the option to see beyond their own local markets, to move to other arenas when the lights are dim in their own.  A global index, more than anything represents a move towards deterring investors’ ignorance.  On a grander scale, the index could inspire the incarnation of a world market where tens and hundreds of disjointed indexes become unnecessarily decrepit in their narrow sampling.

Novaluxe Markets (http://www.novaluxemarkets.com), developed to fulfil such a vision has begun the process of creating a meaningful world index.  The construction of this new index (thus far titled the “Novaluxe World Markets Index”) is in early stages of gathering all of the world’s current markets and existing stocks into a single database.  After almost a full year of harvesting information, the organization is nearly ready to begin the process of defining the components of its index.  While it’s a long processScience Articles, the company sees it as a necessary step into the future economy.

Source: Free Articles from ArticlesFactory.com

ABOUT THE AUTHOR


Karim is a young American expat currently residing in Europe after completing a BFA in Fine Arts in America and a MSc in Computer Science in the UK.  He currently runs a number of businesses based in Europe including http://www.investmentsinbulgaria.com and http://www.homemediabg.com, with Bulgaria as the primary market.



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