The Iberia Index 35, or the IBEX 35 is the benchmark for the Madrid Stock Exchange, mapping the 35 most liquid companies on the exchange. It is a market capitalization weighted index, based on the free float method and is reviewed twice annually. Initiated in January 14, 1992, with a base value for 3000 points and can be traced back to December 1989.
The IBEX 35 involves the total market capitalization of the companies weighted by their effect on the index, so the larger stocks would make more of a difference to the index as compared to a smaller market cap company. The basic formula for any index is (be it capitalization weighted or any other stock index):
The Free float Adjustment factor represents the proportion of shares that is free floated as a percentage of issued shares and then its rounded up to the nearest mulitple of 5% for calculation purposes. To find the free-float capitalization of a company, first find its market cap (number of outstanding shares x share price) then multiply its free-float factor. The free-float method, therefore, does not include restricted stocks, such as those held by company insiders.
While one might track this portfolio’s value in dollar terms, it would probably be an unwieldy number – for example, the S&P 500 market value is roughly $11.8 trillion. Rather than deal with ten or more digits, the figure is scaled to a more easily handled number, currently around 1250. Dividing the portfolio market value by a factor, usually called the Index divisor, does the scaling.
Continuity in index values is maintained by adjusting the divisor for all changes in the constituents’ share capital after the base date. This includes additions and deletions to the index, rights issues, share buybacks and issuances', and spin-offs. The divisor’s time series is, in effect, a chronological summary of all changes affecting the base capital of the index. The divisor is adjusted such that the index value at an instant just prior to a change in base capital equals the index value at an instant immediately following that change.
The composition of the IBEX 35 Index, as of 23rd October, 2008:
|COMPANY NAME||TICKER (MC:)||Weighting|
|Obrascón Huarte Lain||OHL||0.37|