What Is the NYSE Composite Index?
Let me explain the NYSE Composite Index to you directly: it measures the performance of all common stocks listed on the New York Stock Exchange, which includes American Depositary Receipts from foreign companies, Real Estate Investment Trusts, and tracking stocks. I calculate the weights of these index constituents based on their free-float market capitalization. The index itself comes in two forms: one based on price return and another on total return, which factors in dividends.
You should know that the breadth of the NYSE Composite Index, often called NYA, makes it a much better indicator of overall market performance than those narrow indexes with fewer components.
Key Takeaways
Here's what you need to grasp: the NYSE Composite Index is a trackable index that reflects the performance of every stock listed on the New York Stock Exchange. It carries a perception of quality because of the strict listing requirements, and it provides global diversity through the wide range of its holdings. Remember, the NYSE lists over 2,400 companies, and international ones make up about one-third of the total market capitalization.
Understanding the NYSE Composite Index
When I talk about the NYSE Composite Index, I'm referring to something that includes all NYSE-listed stocks, such as foreign stocks, American Depositary Receipts, real estate investment trusts, and tracking stocks. It specifically excludes closed-end funds, ETFs, limited partnerships, and derivatives.
The two main benefits for you as an investor are its quality—all constituents have to meet the exchange's stringent listing requirements—and its global diversification, with international companies representing about one-third of the market capitalization.
Importantly, the NYSE Composite Index stands as a better proxy for the broader stock market than many narrower alternatives, thanks to its large number of constituents and the global diversity in its holdings.
How the NYSE Composite Index Works
The New York Stock Exchange launched this composite index back in 1966, and it was relaunched in 2003 with a new methodology that aligns better with the approaches used by popular broad-based US indexes.
ICE Data Services now acts as the index sponsor and administrator. Before 2003, the Securities Industry Automation Corp handled maintenance and calculations, and the relaunch involved help from Dow Jones Indexes.
Under the current methodology, the composite index no longer includes various security classes like closed-end funds, ETFs, preferred stocks, derivatives, shares of beneficial interest, trust units, and limited partnerships.
We use the last trading price of the included securities to calculate the index. Maintenance requires regular monitoring and adjustments for companies added or removed from the index. Certain company actions, such as stock splits and stock dividends, might need simple changes to account for outstanding shares and stock prices. Other activities, like share issuances, could require adjustments to the index divisor to handle changes in the aggregate free-float adjusted market capitalization.
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