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Construct both a price weighted and value weighted index

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You have decided to construct your own index to measure consumer confidence. You have chosen the following three companies Wal-Mart Stores Inc (WMT), Target Corp (TGT) and Kroger Co. (KR). Using monthly prices from August 2008 through August 2010, Construct both a price weighted and value weighted index. Use a beginning index of 100 where appropriate. What are the monthly returns for your two indexes? Compare your returns to the DJIA and S&P 500 respectively. Do you have any comments on the returns?

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Solution Summary

Shows how to construct your own index to measure consumer confidence. Using data for Wal-Mart Stores Inc (WMT), Target Corp (TGT) and Kroger Co. (KR), shows constructing both a price weighted and value weighted index.

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1. In general, return on the four indices follows the same pattern in general.
2. We see negative consumer confidence during Sept'08 to Feb'09, followed by a slight positive phase till April'10. Since, then it is alternating between ...

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