Sustainable Stock Index - Assignment Example

? Sustainable stock index Introduction This is a research paper that analyses the sustainability index of the Dow Jones. In addition, it compares the Doe’s index with MSCI index to make a conclusive inference why Dow is better. Dow Jones is one of the globe's most trusted authors of precise financial news and commercial data in all media platforms, including newswires, newspapers, records and websites. It in corporate other forms of medium such as TV and other programming sources. Dow Jones enhances the lives of millions internationally as well as enlightens the decisions of company executives and experts working in organizations sales and trading; wealth management; online trading; retail, commercial and investment financial institutions; risk management and laws compliance; public associations and corporate incorporation; information organization and research; insolvency and debt; private impartiality and business enterprise capital; and other industries. These qualities have made the investment in Dow widely recognized and acceptable worldwide. Later in the paper we compare data of other indexes and make inference in their regards. Comparison This investment has a stable foundation and has massed a huge market share world wide. The Dow Jones Industrial Average was crafted by Dow Jones & Company co-founder together with Editor Charles Dow of Wall Street Journal. The index was developed to assess the performance of the industrial segment of the U.S stock market. Dow initially developed its Transportation Average & then after initiated the Dow Jones Industrial Average. This Average is composed of thirty stocks. The price-weighted mean of the thirty stocks establishes the index value. The index is at present a scaled average and not the real average of the prices of its constituent stocks. To balance for the consequences of stock segmentations and other adjustments; the summation of the constituent prices is alienated by a divisor, which alters whenever one of the constituent stocks has a stock dividend or stock split, to create the worth of the index. Since the divisor is at this time less than single, the worth of the index is greater than the sum of the constituent prices. These are stable factors that have seen the Doe Jones investment prosper compared to others. In comparison, the MSCI Global Equity Indices are broadly tracked international equity benchmarks and manage as the foundation for over five hundred exchanged traded finances throughout the globe. The indices offer exhaustive equity marketplace coverage for over seventy countries in the urbanized, developing and frontier markets, use a consistent index creation and maintenance tactic. This method permits for meaningful global perspectives and cross regional contrasts across all souk capitalization size, segment and style sections and combinations (Lofton, 2007). The MSIC seems to have gain gowned and developing or advancing at a higher rate though Dow still leads in sustainability. The Dow Jones Sustainability Indices are sustained cooperatively by Sam and S&P Dow Jones Indices. Following a best-in-class methodology, the indices gauge the performance of the universe's sustainability king pins. Companies are chosen for the indices gauged on a comprehensive evaluation of long-term financial, ecological and social strategy that account for broad as well as firm-specific sustainability tendency. Only organizations that front their industries based on this appraisal are incorporated in the indices. The indices are generated and maintained in accordance to a systematic methodology, permitting investors to suitably benchmark sustainability-driven derivatives and funds over the long term. These sustainably deliverables are much better and stable. They form the basis of comparison and leads to inference that investing in Dow Jones ventures is a better concept compared to others. Survey of previous research The area of sustainability indices has been analyzed by many researchers and yet to conclusively give an all inclusive findings. In the section, we consider the empirical literature studies that have been carried out in regards to the subject. The first is the findings of the Fondezione Eni Enrico Mattei (FEEM) SI Sustainability Index (Nordic Council of Ministers, 2012).The paper presented an application of a multi-element cumulative methodology to the edifice sustainability index. Sustainability is a complex-faceted matter, in which conflicts or synergies may come up among the diverse components, thus making it a multifaceted idea to which multi deliverables strategies can be applied (Ramachandran, 2000). The research addressed the creation of the FEEM SI-FEEM Sustainability Index, an amalgamated index involving 19 diverse indicators incorporated in the three conventional pillars of sustainability that is social, economic and environmental. It is a fact that the deliverables considered in sustainability evaluation involve economy, environment and society. The research presented the significance of multi-attribute incorporation methodologies when handling such complex ideas and provided an aggregation tactic applied for the case study, the Choquet-integral aggregation (Calvo, 2002). In fact, due to this methodology requirement of the assignment of weights on pointers and their coalitions, an informal questionnaire was enforced to evaluate the significance of sustainability indicators through specialist elicitation. After computing the figures weights for the Choquet-integral accumulation procedure the entire sustainability index, the FEEM SI is computed and inference made. This paper also conducted sturdiness analysis and converse the main inference of the aggregation methodology applied. The study is essential for our research in order to gather necessary comparison apparatus. Sustainable progress has turn into one of the most accepted catchwords on the universal’s policy agenda. Nearly all nations and governments have dedicated themselves to sustainable enlargement by integrating financial welfare, ecological quality and social rationality. As an end result, there is a sturdy opinionated desire for the inclusive assessment of diversifications in environmental, economic, and social comprising institutional conditions: A matter that can not be evidently deliberated will be hard to improve. Examining progress in regards to sustainable development (SD) necessitates in first place the recognition of operational indicators that give manageable units of data on environmental, economic, and social situations (George, 2007). The central responsibility of SD indicators has was highlighted by the UNCED-United Nations Conference on Environment and Development, that invited on individual nations as well as intercontinental governmental and non-government al associations to build up and identify pointers of SD in order to progress the data basis for decision-making at all levels. The Compendium of Sustainable expansion Indicator inventiveness mentions more than five hundred sustainable pointers efforts (Parris and Kates, 2003). Objective The aim of the study is to collect information from empirical researches to make a conclusive argument in regards to the investment choice. The paper compares the two indexes and makes a conclusive judgment and supportive argument for the opted investment. The literature review gave the concept to compare when handling the sustainability comparison in this paper. Research Question 1: What are the investment merits of DOW JONES sustainable stock index? This research question assist in conclusive justification for choosing Dow Jones as opposed to other sustainable index such as MSCI WORLD EQUITY INDEX. The merits give the basis of comparison and enhance the inference choice. Hypothesis: Established suitable index investments are advantageous. Research Question 2: Comparison between DOW JONES sustainable stock index and the MSCI WORLD EQUITY INDEX? Answering the question is a key aspect of this research paper since it will give the rationale for selecting the opted investment. Hypothesis: DOW JONES sustainable indices are better than MSIC. Null Hypothesis: it is not an easy matter to compare index of industries since their indicators differ. Data collection Process In this part, describe and analyze the major ideas utilized in the background of study based on an assessment of accessible hypothetical and empirical studies. The subject matter under study requires drawing of inference either to refute or substantiate the provided hypothesis and to achieve the goals of the research. Qualitative study approach involves collecting, interpreting and analyzing data gathered from the field through interviews, questionnaires, and observations or those accessible from the secondary sources (Klenke, 2008). It may also encompass use of focus groups in case relatively small figures of informants are questioned in-depth. For the study, quantitative approach will be more suitable since we apply empirical analysis of data gathered from secondary sources. In this study, Excel spreadsheet is utilized to implements Markowitz’s mean-variance hypothesis. It optimizes asset distribution by finding the stock circulation that reduces the standard deviation of the workload while maintaining the preferred return.  A series of model stocks are incorporated, but the Excel can be modified to other stocks assortments.  The origin of contemporary portfolio theory was initiated in late 50s with Harry Markowitz’s pioneering job in mean-variance assortment optimization.  Before his novelty, economics was far more encouraged by heuristics than by arithmetical modeling. Mean-variance optimization is currently the key technique used by hedge funds and retirement fund funds for portfolio transformation. Most entrepreneurs trade risk off against the predictable return.  Mean-variance optimization recognizes the investment collection that minimizes risk such as standard deviation for a specified return (Markowitz, 2000).  The resourceful frontier is the line that develops when the anticipated returns are schemed against the reduced standard divergence. Mean-variance workload optimization has, though, several restrictions. Using standard deviation or variance as a substitute for risk is applicable only for usually distributed proceeds. While this may be factual for conventional bonds, stocks, derivatives and hedge finances exhibit skew and kurtosis, which nullifies the use of Markowitz’s theory. The basis of the theory involves that investors will not change their asset distribution after it has been exploited to the full. Investors or fund administrators may not inevitably want to reduce risk such as in the scenario of standard deviation. They may, as an alternative, want to lessen the correlation of finance to a benchmark. Markowitz’s strategy to portfolio optimization has been customized to cater for transaction costs, which can formulate portfolio alteration unprofitable and to only castigate downside volatility because most investors do not care sudden large up growth in volatility. Analysis This section involves presentation of data in a more understandable format. Excel usage is applicable here to assist represent the finding in table chart and graphs for better understanding. Using Standard Deviation, Mean, Skewness, and Kurtosis; when provided with a collection of data, it is significant to recognize what information may be concealed in the sea of figures. We identify that the Mean provides us the central trend of the statistics, the Standard Deviation discusses the spreading about the Mean, the Skewness signifies the asymmetry or symmetry of the statistics, and the Kurtosis is correlated to the form or lucid characteristics. In quintessence, we are applying these numerical values to give details about the properties of the fundamental distribution or possibility density function. These data can be utilized to qualitatively execute distribution fitting for information (Stehling, 1988). The study assessed the distinctiveness of the equity return variances of Dow Jones U.S. S&P 500 index, Select Dividend Index, and NYSE composite directory using the primary four moments involving mean as the first moment, the second moment involve variance or standard deviation, thirdly is skewness, and lastly kurtosis as the fourth from for a period of a decade. Returns provided by Dow Jones U.S. Select Dividend Index declined less compared to the market indexes in the previous ten years, particularly during 2008 when the America was hit by a decline in economy growth (Wild, 2011). The connection between different souk indexes, LIBOR, and U.S. GDP with Dow Jones American Select Dividend Index being scrutinized by computing the coefficient of connection. The deterioration analysis was executed to exploit the coefficient of willpower. Results inferred that both market keys, LIBOR and U.S. GDP, when applied together, better predicted the engagements in the Jones U.S. Select Dividend Index. It was also established that this Index is least associated with U.S. GDP but highly connected with LIBOR (Sirkeci, Cohen, & Ratha, 2011). The diagrams below compare the sustainability of Dow with others and give information supporting the preference of this investment group to others.   All ordinary accumulative index Value Monthly No. of Observation   Simulation index Value Monthly Rate of Return No of Observations   $1000 Invested Rate of Return 3/31/1987 4601.6001     3/31/1987 100     3/31/1987 $1,000 4/30/1987 4874.3999 0.0592837 1 4/30/1987 101 0.01 1 4/30/1987 $1,010 5/31/1987 4850.2002 -0.0049647 2 5/31/1987 103 0.019802 2 5/31/1987 $1,030 6/30/1987 4840.7998 -0.0019381 3 6/30/1987 105 0.0194175 3 6/30/1987 $1,050 7/31/1987 5580.6001 0.152826 4 7/31/1987 100 -0.047619 4 7/31/1987 $1,000 8/31/1987 5914.7002 0.0598681 5 8/31/1987 99 -0.01 5 8/31/1987 $990 9/30/1987 6197.2002 0.0477624 6 9/30/1987 100 0.010101 6 9/30/1987 $1,000 10/30/1987 3586.1001 -0.4213354 7 10/30/1987 101 0.01 7 10/30/1987 $1,010 11/30/1987 3696.3999 0.0307576 8 11/30/1987 105 0.039604 8 11/30/1987 $1,050 12/31/1987 3677.5 -0.0051131 9 12/31/1987 101 -0.0380952 9 12/31/1987 $1,010 1/29/1988 3510.5 -0.0454113 10 1/29/1988 100 -0.009901 10 1/29/1988 $1,000 2/29/1988 3499.8999 -0.0030195 11 2/29/1988 99.5 -0.005 11 2/29/1988 $995 3/31/1988 3975.3 0.1358325 12 3/31/1988 102 0.0251256 12 3/31/1988 $1,020 4/29/1988 4120.5 0.0365255 13 4/29/1988 105 0.0294118 13 4/29/1988 $1,050 5/31/1988 4446.6001 0.0791409 14 5/31/1988 108 0.0285714 14 5/31/1988 $1,080 6/30/1988 4423.7998 -0.0051276 15 6/30/1988 110 0.0185185 15 6/30/1988 $1,100 7/29/1988 4591.1001 0.0378182 16 7/29/1988 111 0.0090909 16 7/29/1988 $1,110 8/31/1988 4482 -0.0237634 17 8/31/1988 105 -0.0540541 17 8/31/1988 $1,050 9/30/1988 4439.6001 -0.00946 18 9/30/1988 108 0.0285714 18 9/30/1988 $1,080 10/31/1988 4579.3999 0.0314893 19 10/31/1988 114 0.0555556 19 10/31/1988 $1,140 11/30/1988 4262.7002 -0.0691575 20 11/30/1988 115 0.0087719 20 11/30/1988 $1,150 12/30/1988 4334.8999 0.0169376 21 12/30/1988 119 0.0347826 21 12/30/1988 $1,190 1/31/1989 4528.2002 0.0445916 22 1/31/1989 117 -0.0168067 22 1/31/1989 $1,170 2/28/1989 4348.3999 -0.0397068 23 2/28/1989 118 0.008547 23 2/28/1989 $1,180 3/31/1989 4297.2002 -0.0117744 24 3/31/1989 121 0.0254237 24 3/31/1989 $1,210 All index accumulative values table Simulation index values The above data presentation represents a graphical analysis of the research finding for indices analysis. Portfolio Indexes Many investors, comprising both privates and large organization, diversify their possessions among a variety of investments such as stocks, bonds and finance. When planning or contemplating the amount to spend in every asset class, investors usually seeks to exploit their returns at supportable risk levels. This is a convincing factors and a viable reasons justifying choosing the Dow Jones investment than MSCI since risk tolerability is well catered. Dow Jones Portfolio Indexes were generated with this purpose in concept. The series comprises two categories: Dow Jones Target Date Indexes and Dow Jones Relative Risk Indexes. Each relation Risk Index and objective Date Index symbolizes a total portfolio regards to stock, bond and finance sub indexes. The categories vary in that Relative Risk Indexes mirror fixed stages of possible risk, while Target Date Indexes reproduce potential risk stages that reduce as targeted maturity dates nears (Collins, & Fabozzi, 1999). The Dow has well established market share compared to MSCI and the target is well established. Unlike MSCI, which operate on a huge number of components that come with challenge of control, Dow has manageable constituents that are easy to control and manage. Dow Jones Workload Indexes Dow Jones Relative threat Indexes Total-portfolio indexes that correspond to fixed levels of threat, depending on the entrepreneur's risk tolerance. Dow Jones Target Time Indexes Total-portfolio indexes that mirror automatic declines in potential threat as an objective maturity date nears (for instance, to correspond with a child commencing college or retirement). UNIVERSAL SERIES U.S. SERIES UNIVERSAL SERIES U.S. SERIES Conservative Index conservatives Index Target 2045 Index Target 2045 Index Conservative Index Moderately Conservative Index Target 2040 Index Target 2040 Index Moderate Index Moderate Index Target 2035 Index Target 2035 Index Aggressive Index Moderately Aggressive Index Target 2030 Index Target 2030 Index Aggressive Index Aggressive Index Target 2025 Index Target 2025 Index     Target 2020 Index Target 2020 Index     Target 2015 Index Target 2015 Index     Target 2010 Index Target 2010 Index     Target 2005 Index Target 2005 Index     Target Today Index Target Today Index The table above compares the Dow Jones performance indexes within the U.S and Global series. The comparison shows that the investment portfolio analysis mirrors the local and international distribution and facilitates proper investment plans. Recommendation Determining choice of investment need a clear analysis of the profit level and risk assessment. The study reveals that risk assessment is one of the pillars of Dow Jones investments strategies. It recommended investing in venture that has broad aspect of business continuity and growth. Limitation The sustainability index depends on environment, economy and social status of a country or nation. This brings a limitation in that these variables are affected differently depending of the uncontrollable phenomenon. This pose a limitation in making conclusive analysis between sustainability indexes of different industries operating in different market share. Dow Jones has challenges affecting its investment in respective ventures so is the MSCI. The only advantage for Dows is initial proper strategies and target market, which are relatively operated in cooperation. Conclusion The Dow Jones Industrial Average was crafted by Dow Jones & Company co-founder together with Editor Charles Dow of Wall Street Journal. The index was developed to assess the performance of the industrial segment of the U.S stock market. Qualitative study approach involves collecting, interpreting and analyzing data gathered from the field through interviews, questionnaires, and observations or those accessible from the secondary sources. It may also encompass use of focus groups in case relatively small figures of informants are questioned in-depth. The literature review gives the relative researches that have been completed in regards to sustainability indexes. In addition, they give the indicators that must be adhered to when handling the research that is the economical aspect, environment consideration and social matters. It is evident that the most beneficial investment in this study would be Dow considering the risk assessment and other investment strategies that are used to implement strategies. References Calvo, T. (2002). Aggregation operators: New trends and applications; with 9 tables. Heidelberg [u.a.: Physica-Verl. Collins, B. M., & Fabozzi, F. J. (1999). Derivatives and equity portfolio management. New Hope: Fabozzi Ass. George, C. (2007). Impact assessment and sustainable development: European practice and experience. Cheltenham [u.a.: Elgar. Klenke, K. (2008). Qualitative research in the study of leadership. Bingley, UK: Emerald Group Pub. Lofton, T. (2007). Getting started in exchange traded funds (ETFs). Hoboken, N.J: John Wiley & Sons. Markowitz, H. M. (2000). Mean-variance analysis in portfolio choice and capital markets. New Hope, Pa: Frank J. Fabozzi Assoc. Nordic Council of Ministers (2012) Using the Right Environmental Indicators: Tracking Progress, Raising Awareness and Supporting Analysis. (2012). Nordic Council of Ministers. Parris, T.M. and R.W. Kates, 2003. Characterizing and Measuring Sustainable Development. Annual Review of Environmental Resources, 28 (13): 1-28. Ramachandran, N., 2000. Monitoring Sustainability: Indices and Techniques of Analysis. Concept Publishing Company, New Delhi. Sirkeci, I., Cohen, J. H., & Ratha, D. (2011). Migration and remittances during the global financial crisis and beyond. Washington, D.C: World Bank. Stehling, F., 1988. Environmental Quality Indices: Problems, Concepts, Examples. In: W. Eichhorn, (Editor). Measurement in Economics. Physica-Verlag, Heidelberg, pp. 349- 369. Wild, R. (2011). Exchange-Traded Funds for Dummies. Hoboken: John Wiley & Sons, Inc. Read More