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Weighting

When calculating an average from a given data set, the process of allowing some data points to affect the average more than others. For example, if one is calculating the average value of a stock index, one may weight the stocks with higher market capitalization greater than other stocks. Likewise, if one is determining a moving average over a given number of trading days, one may weight more recent trading days than those more distant. Weighting can lessen some of the disadvantages of taking the average of a data set instead of taking the median.

weighting

The assigning of a measure of relative importance to each of a group of variables that are combined. If an investor has 70% of his or her invested funds in stock A, which provides a current yield of 6%, and the remaining 30% of the invested funds in stock B, which provides a current yield of 12%, the weighted current yield of both securities is (0.70)(0.06) + (0.30)(0.12), or 7.8%.
Case Study The weighting of individual securities included in an index or average can have a major impact on the market price of both the individual securities included in the index as well as on movements in the index or average itself. Although a few averages are weighted according to each component's price (for example, the Dow Jones Industrial Average), and even fewer are unweighted (the Value Line Average), most are weighted on the basis of market capitalization. That is, the index or average is calculated using a combination of each component's security price and number of outstanding shares. In May 2001 Morgan Stanley Capital International (MSCI), the world's largest indexing company, announced its intention to alter the composition of the indexes the firm calculated and published. In addition to adding and deleting companies, the firm would alter the weighting of most of the securities included in the index. At the time of the announcement MSCI was using full market capitalization to weight the components. That is, the firm was using the total number of shares outstanding, even if some of these shares were unavailable for trading. The new weighting would use "free float," or the number of shares that were actually available to investors. This change was particularly important to shareholders of companies such as Deutsche Telekom and France Telecom because the significant portion of each firm's shares was owned by its government and would not be included under the revised weighting system. The revised weighting would make each of these securities less important in the calculation. It would also likely cause a decline in the price of each security as index funds sold the stocks to rebalance their portfolios. At the same time, other stocks that assumed greater weighting under the new system could be expected to increase in price as index funds accumulated the securities for their portfolios.
References in periodicals archive ?
According to Morgan Stanley analysts, if weightings are changed, Lloyds Bank would be the hardest hit.
Because of the stock index weighting adjustment in Asia's stock markets, JPMorgan Stanley estimated Taiwan stock market will see a net outflow of US$56 million while China stock market will be able to absorb fresh funds of approximately US$100 million from international institutional investors.
Various degrees of risk weighting were set in 1988 by the Basel-based Bank for International Settlements (BIS) to help banks compute their capital adequacy ratios and limit excessive exposure to risky assets.
Term weighting is a technique for assigning different weights for different keywords (terms) according to their relative importance to the document (Shaw, 1995; Salton & McGill, 1983).
As a result, a holder of these assets receives a 50 percent or lower risk weighting depending on the makeup of the underlying pool.
While these target weightings can be achieved through organic growth, GPT will also continue to look at strategic investment opportunities.
During the adjustment, the weighting of mainland Chinese and Indian stocks in EMF rose further, dampening the weighting of Taiwan and South Korea, although the weighting of Indonesia, the Philippines, and Thailand remained unchanged.
During the year, a combination of strong performance relative to other sectors and managers moving money into these sectors meant that weightings were boosted in both UK and Overseas Bonds.
Staff working in Higher education establishments have not had a rise in their London weighting in over ten years
As visions of economic rebound came into view, fund managers flocked to tech-rich South Korea, boosting their country weightings from 10.
The advisor may change the fund's asset class allocations, the underlying funds or the target weightings in the underlying funds at its discretion.
The fund's holdings are "sector neutral," (their sector weightings closely resemble those of the Russell 1000 Value Index).