The New Sensex

Mr. Axe and Ms. Houghton were the first to build the Axe Houghton Index. Charles DOW’s work came later, sometime in 1880’s. Standard and Poor was also founded during that time. Though it’s not clear who created the market capitalization methodology, but S&P is the largest publisher of market capitalization methodology indices. It was about 100 years later in 1960’s that MSCI took the idea ahead to a global and emerging market. And then there were broad indices from Russell’s etc.
The offer just kept getting larger with Derivatives, and ETF providers. A generation long financial industry built around indexing, a simple average or market capitalization methodology. No wonder the Nifty we knew got rechristened as S&P CNX Nifty. Though the Sensex may have avoided rechristening it also is a market capitalization index.
150 years is a long time for an idea to survive. But if the idea is an extension of human psychology it may become eternal. Now whether this makes it a candidate for Mackay’s grand illusions would be academic blasphemy, but this is what has already been voiced and proved that market capitalization is a flawed indexing approach.
Why?
You can read the complete article in Business Standard

Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.