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WIKI ANALYSIS
CAC 40 is used as a benchmark for investors in the Paris Bourse (the Stock exchange). It is also used as a benchmark for the french economy, similar to the Dow Jones Industrial Average (.DJIA) in the United States. But unlike the Dow, the CAC 40 is a market capitalization weighted index that follows the top 40 stocks in the Bourse (the Dow is a price-weighted index).
Weighting
A stock market index weighted by the market capitalization of each stock in the index. In such a weighting scheme, larger companies account for a greater portion of the index. If a company's market capitalization is $1 million and the market capitalization of all stocks in the index is $100 million, then the company would be worth 1% of the index.[1]
This is also called the free float method. The basic formula for any index is (be it capitalization weighted or any other stock index)[2]:
- Index level= Σ(Price of stock* Number of shares)*Free float factor/ Index Divisor.
The Free float Adjustment factor represents the proportion of shares that is freefloated 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.
Composition
The composition of the CAC 40 Index, as of 16th October, 2008:[2]
References
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