EQUITY MARKET

Indices- Equity Market



Table of Contents

Introduction1

The Dow Jones Industrial Average1

FTSE Index1

Major Events and Impact on the Indices2

1998 Currency Crisis2

Burst of the Dot Com bubble2

The aftermath of 9/11 terrorist attack in New York4

USA subprime mortgage crisis of 20084

Listing Criteria6

DJIA6

FTSE7

Forecasts8

FTSE8

DJIA9

Conclusion10

References11

Indices- Equity Market

Introduction

Financial markets have experienced massive ups and downs in the past decade. These events have affected their value and future estimates. This paper presents a comparison between the Dow Jones Industrial Average and the FTSE Index. Moreover, it elaborates the major events in history and the impact of those events on market capitalization of these indices. Some of the events discussed here include the burst of the dot com bubble in 2001, the terrorist attack on the twin towers of New York and the subprime mortgage crisis. In the end, a forecast of the indices is presented with the stated assumptions.

The Dow Jones Industrial Average

The DJIA is a financial index that contains thirty largest companies in the United States of America. It is one of the most recognized indices in the world. DJIA covers all the major sectors and industries except transportation and utility. Selection of the companies is decided by the Wall Street Journal editors. Moreover the index uses a price weighted system for calculation of market capitalization. The business and industrial sectors in this index includes Consumer Staples, Financials, Information Technology, Health Care and Energy

The index represents health of the financial markets. It exhibits the trend in the share price of the listed companies. Moreover, it displays the closing price and the volume of shares traded on daily basis. Since DJIA is one of the most influential indices of the world, therefore, analysts all over the world and high net worth individuals track the movement of the index for the purpose of analysis and investment accordingly.

FTSE Index

FTSE is a market capitalization weighted index and represents more than 98% of the market capitalization of United Kingdom. The FTSE-100 index is constituted of the most influential and high market cap companies. These are the blue chip companies that have passed the liquidity along with other requirements of the regulatory exchange. FTSE 100 caters to numerous sectors but the largest blue chip companies that belong to the Banking sector, Oil and Gas exploration and production, telecommunication, Pharmaceuticals & Biotechnology, Tobacco and mining industries accordingly (McBrewster, 2010, p.25).

FTSE reflects the financial health of the individual companies as well as the overall market. It shows the movement and trend in the share price of the listed companies. The statistics conveyed by the index includes the high, low and closing price of the index along with the volume of trading. This information is used by the financial analysts and investment companies worldwide. The purpose is to observe the trend and movement of the market, make their forecasts and recommend accordingly to their clients.

Major Events and Impact on the Indices

Stock markets all over the world have experienced drastic events that have reshaped the history of those indices. Impact of some major market crashes in the past and ...