THE South Pacific Stock Exchange has launched its SPSE Total Return Index ("STRI") and it is expected to enhance investment decisions.
Indices are used to assess the performance of a portfolio of stocks representing a segment of the overall market.
"Different stock indices can be calculated in various ways. Accordingly, even where indices are based on identical securities, they may measure the relevant market differently because of differences in methods of calculation," SPSE chief executive officer Jinita Prasad said.
STRI is an aggregate market capitalisation index which reflects the total return from the stock market including the capital yield in price and dividend returns.
The index is constructed on a base of 1000 set at January 4, 2000.
The exchange has been using the Kontiki South Pacific Stock Exchange Index (KSPX) from 2000. KSPX is a share-price index composed of the market-weighted average of the 16 companies listed on the SPSE trading board and is prepared by Kontiki Stockbroking Limited.
"The introduction of the SPSE Total Return Index will now give a wider choice to the share market brokers to analyse the market and advise their clients in making informed decisions and the prospective investors can now study the movement in STRI and make their investment choices as well," Ms Prasad said.
She also highlighted that STRI was constructed to measure the change or movement in the whole of the SPSE's share market through changes in total returns (price plus dividends), also known as accumulation index.
The price index measures only capital gains and losses, and ignores dividends or distributions received, whereas an accumulation index provides a total return by including such income paid to the shareholder.
It follows that the accumulation index will typically be higher than the price index. In essence, these indices are the performance yardstick for SPSE.
Alongside STRI, the exchange will also be maintaining equal weighted price and total return indices.