There was a time when multinational corporations were relatively few in number, but the increase in global trade at all levels of business has changed that. Today, businesses large and small have offices, manufacturing operations, and trade associations or sell merchandise around the world. As a result, stock markets around the world reflect the global nature of the companies traded on their exchanges, which in turn reflects the growing integration between each trading market. Fluctuations in one stock exchange often have a domino effect in other exchanges due to a number of economic relationships between markets. Describing all of the factors that play into these relationships is another discussion, but suffice it to say that in the most general sense, the impact on the market is based on speculation.
The growing influence that price changes in one stock exchange have on others is why it is more important than ever to monitor changes in the global market. Within hours, or even minutes, the premonition of how a market might open could be the difference between a profit or a loss. As one market closes another opens, first New York City which precedes Asian markets such as Tokyo, Shanghai, Hong Kong and Bombay which in turn precede European markets including Germany, France and Great Britain and then back to New York. The reflected trends of these markets mirroring each other can easily be seen by comparing the major indices of each market. You can plot the performance, for example, of the Dow Jones Industrial Average against the Nikkei and the Hang Seng in Asia, then for example against the DAX, CAC and FTSI in Europe. You will notice how the trends follow one another. In terms of clues, it really looks like a global economy.
Global stock indices are the bell of the markets they represent, but there are some considerations that should be taken into account when analyzing the impacts of one stock exchange on another using indices. .
Indices are primarily based on groupings and averages of stock prices within a market. These are not actually traded instruments and therefore there is no volume for the indices, so there is no consideration for demand in the price of the index. Without a gauge of momentum within the market, a market change could only represent a fraction of the market or, conversely, a major movement, the point is that from the price of the market. Clue, there is no way to know which volumes are exchanging, just because there is no volume.
Secondly, the indices do not necessarily have to be compared on an equal scale, for example, there are significant differences between the economies of the United States and the Philippines which make equal comparisons between the Dow Jones or S&P 500 and the somewhat biased Manilla Composite.
Third, you should definitely look at the makeup and company profile of the companies within each index you compare. Some indices are made up of companies based on size or sector that would not compare well with other indices based on different criteria.
The fourth consideration should be to look at the base of the index, for example when it was created and the base value when it was launched, when the indices are first introduced they are set with a base or initial value, then changes from the base value are deemed to reflect changes in the particular industry or market that the index is attempting to indicate. In this way, an index with a value in thousands may or may not have a relation to and a recently created index in the hundreds. In other words, the actual point value is much less than the percentage change in the index.
The last point we'll cover here is the index's monetary base. Although indices are not technically "valued in currencies", index totals are based on stock prices in a particular market and the actual value is therefore affected by the currency underlying the securities. For example, as of this writing the NIKKEI index is at 15,583.42 while the Dow Jones industrial average is at 13,087.13 but the Nikkei reflects the prices of securities traded in Japanese yen. which are currently trading at 0.009 against the US dollar. So in reality if the scale is equalized the Nikkei would be 140.42. This presents a view of the difference in scale between the two indices and further demonstrates why it is much more important to compare performance when comparing indices if you want a more accurate picture.
I mentioned the momentum issue previously where the lack of volume display prevents you from measuring the change of an index in regards to the level of trading in that market on that day. -the. There are, however, other tools you can use to make up for this. The first is to use market statistics and compare trading volumes across the entire market. If you want to run momentum-based indicators on the representation closest to the index, you can use ETFs that have volume. ETF volume does not represent the cumulative volume of securities in an index rather the ETF volume represents the volume of the ETF traded, but the use of ETF will allow you to run momentum based indicators such as MACD on the price trends of a version of an index. In the near future, however, you will be able to get a much better understanding of the momentum behind certain indicators, as we plan to add the cumulative volume of certain indices to a representative portfolio of stocks. in order to enable people to achieve precise and real technical performance based on momentum. analysis of indices on our site for free.
It is important to follow international market close indices before your market opens, which often indicate future trading in subsequent markets. However, it is also essential to place your analysis in the perspective of the framework you are working in, to understand the database you are using to compare indices correctly.