Comment by themafia
15 hours ago
> They’re meant to communicate some metric about the market.
Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? That seems dubious.
15 hours ago
> They’re meant to communicate some metric about the market.
Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters? That seems dubious.
> Is that why people spend time, money and effort creating and maintaining them? They're just broadcasters?
Yes. There are more indices than there are stocks. Publishing an index is, business wise, a game of getting funds to license them.
Once you have an index, you can offer all sorts of products around it.
-You can offer a return swap to an investor so he can "invest" in the index. You can alternatively build a whole list of derivatives and products around it and offer them to investors instead (think Itraxx,Vix,etc)
-A fund manager can use it as his benchmark and you get to see if he is good or not.
-If its a factor index you can now use it for risk management and return attribution.
The key thing today is that creating a new index that isn't a fad is very hard. There has also been a lot of consolidation of indices into few players (SP, MSCI, Bloomberg) as it's obviously an economies of scale business.
I mean, they get paid for it, sometimes quite a lot, for this "broadcasting". $100mm of AUM gets you like $200k profit/yr. (Like $500k minus fees)