Lesson 8 of 8 · All lessons in this module
- Primary markets, secondary markets and how trades are arranged
- Routes to public equity: IPOs, SPACs, direct listings and follow-ons
- Why IPOs are underpriced, and what secondary markets do
- Exchange trading: the order book, the bid-ask spread and VWAP
- Off-exchange and over-the-counter equity trading
- Measuring liquidity: float, average daily volume and turnover
- Types of equity indexes
- Composite, theme, ESG and factor equity indexes
This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.
Lesson 8 of 8 · 12 min
Composite, theme, ESG and factor equity indexes
Most broad equity indexes are float-adjusted cap-weighted and split by size from a composite; narrower sector, theme, ESG, equal-weighted and factor indexes answer the biases of cap weighting and serve as benchmarks and the basis of index products, including multi-market products that carry currency risk.
In short
- Indexes are used to track risk and return, evaluate and benchmark managers, and build indexed products.
- Most broad-based indexes hold the largest listed firms, float-adjusted and market-cap weighted. A composite index covers more than 90% of a market and is split into large-, mid- and small-cap indexes.
- Cap-weighted indexes are dominated by the biggest (and best-performing) firms and by concentrated industries, which drives demand for sector indexes.
- Theme indexes follow investor trends (domestic consumption, infrastructure, Islamic-law compliance, ESG); ESG indexes exclude activities and then drop the lowest-scoring firms.
- Equal-weighted indexes give every constituent the same weight; fundamental factor indexes (e.g. quality) weight by a statistical score built from several fundamentals.
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