Class IndexConstruction

java.lang.Object
com.quantfinlib.markets.IndexConstruction
public final class IndexConstruction extends Object
INDEX construction — the arithmetic behind "the market was up 1%". Three weighting schemes produce three different markets from the same stocks:
  • cap-weighted (S&P 500 style): weight = float-adjusted market cap share. Self-rebalancing under price moves (a stock that doubles doubles its own weight — no trading needed), which is why cap-weight is the lowest-turnover scheme and the natural benchmark;
  • price-weighted (Dow style): weight = price share. A $400 stock moves the index 8x as much as a $50 stock regardless of company size — a historical accident kept alive by tradition;
  • equal-weighted: constant 1/N. Systematically tilts small and must TRADE every rebalance to stay equal — the turnover is the price of the tilt.

The DIVISOR is how a level series survives membership and share changes: level = sum(price * shares * float) / divisor. When a member is added, dropped or re-floated, the divisor is rescaled so the level is CONTINUOUS through the change — newDivisor = oldDivisor * newAggregate / oldAggregate — so the index only ever moves for price reasons (pinned by test: a member swap leaves the level unchanged at the instant of the swap). turnover(w1, w2) = 0.5 * sum |w1 - w2| is the one-way fraction of the portfolio that must trade between two weight vectors — the index-tracking cost driver. Research lane, deterministic.

  • Method Summary

    Modifier and Type
    Method
    Description
    static double
    adjustDivisor(double oldDivisor, double oldAggregate, double newAggregate)
    The rescaled divisor that keeps the level CONTINUOUS through a membership/share/float change: pass the aggregate cap before and after the change (both at the same instant).
    static double[]
    capWeights(double[] prices, double[] shares, double[] floatFactors)
    Float-adjusted cap weights: w_i ∝ price_i * shares_i * float_i.
    static double[]
    equalWeights(int n)
    Equal weights, 1/N.
    static double
    level(double[] prices, double[] shares, double[] floatFactors, double divisor)
    Index level from an aggregate and a divisor.
    static double[]
    priceWeights(double[] prices)
    Price weights: w_i ∝ price_i (the Dow's accident).
    static double
    turnover(double[] from, double[] to)
    One-way turnover between two aligned weight vectors: 0.5 * sum|w1-w2|.

    Methods inherited from class java.lang.Object

    clone, equals, finalize, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait

  • Method Details

    • capWeights

      public static double[] capWeights(double[] prices, double[] shares, double[] floatFactors)
      Float-adjusted cap weights: w_i ∝ price_i * shares_i * float_i.

    • priceWeights

      public static double[] priceWeights(double[] prices)
      Price weights: w_i ∝ price_i (the Dow's accident).

    • equalWeights

      public static double[] equalWeights(int n)
      Equal weights, 1/N.

    • level

      public static double level(double[] prices, double[] shares, double[] floatFactors, double divisor)
      Index level from an aggregate and a divisor.

    • adjustDivisor

      public static double adjustDivisor(double oldDivisor, double oldAggregate, double newAggregate)
      The rescaled divisor that keeps the level CONTINUOUS through a membership/share/float change: pass the aggregate cap before and after the change (both at the same instant).

    • turnover

      public static double turnover(double[] from, double[] to)
      One-way turnover between two aligned weight vectors: 0.5 * sum|w1-w2|.