Month: April 2023

The Nikkei 225 index

by

The Nikkei 225 index

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023) presents the Nikkei 225 index and details its characteristics.

The Nikkei 225 index

The Nikkei 225 index is considered as the primary benchmark index of the Tokyo Stock Exchange (TSE) and is the most widely quoted average of Japanese equities. One of Japan’s top newspapers, the Nihon Keizai Shimbun (Nikkei), first published the index in 1950. The index consists of 225 blue-chip companies listed on the TSE, which are considered to represent the overall health of the Japanese economy. These companies come from various industries such as finance, technology, automobile, and retail, among others.

The Financial Times, a preeminent global provider of financial news, was purchased by Nikkei Inc, the parent company of Nikkei, for $1.3 billion in 2015. This acquisition highlighted Nikkei’s growing global presence and ambition to diversify beyond the Japanese market. The Nikkei 225 index follows a price-weighted methodology. This means that the components of the index are weighted based on their stock price, with higher-priced stocks carrying a greater weight in the index.

In the past few years, the Nikkei 225 index has been affected by various economic and political events, such as the COVID-19 pandemic and the Tokyo Olympics. The pandemic caused the index to significantly decline in 2020, but it has since recovered and reached new highs in 2021.

How is the Nikkei 225 index represented in trading platforms and financial websites? The ticker symbol used in the financial industry for the Nikkei 225 index is “NI225”.

Table 1 below gives the Top 10 stocks in the Nikkei 225 index in terms of market capitalization as of January 31, 2023.

Table 1. Top 10 stocks in the Nikkei index.
Top 10 stocks in the Nikkei 225 index
Source: computation by the author (data: YahooFinance! financial website).

Table 2 below gives the sector representation of the Nikkei 225 index in terms of number of stocks and market capitalization as of January 31, 2023.

Table 2. Sector representation in the Nikkei 225 index.
Sector representation in the Nikkei 225 index
Source: computation by the author (data: YahooFinance! financial website).

Calculation of the Nikkei 225 index value

The Nikkei 225 index is calculated using a price-weighted methodology. This means that the price of each stock in the index is multiplied by the number of shares outstanding to determine the total market value of the company. The Nikkei 225 index is frequently used as a leading indicator of the state of the Japanese stock market, and economy, and as a gauge of trends in the world economy.

The formula to compute the Nikkei 225 is given by

A price-weighted index is calculated by summing the prices of all the assets in the index and dividing by a divisor equal to the number of assets.

The formula for a price-weighted index is given by

Price-weighted index value

where I is the index value, k a given asset, K the number of assets in the index, Pk the market price of asset k, and t the time of calculation of the index.

In a price-weighted index, the weight of asset k is given by formula can be rewritten as

Price-weighted index weight

which clearly shows that the weight of each asset in the index is its market price divided by the sum of the market prices of all assets.

Note that the divisor, which is equal to the number of shares, is typically adjusted for events such as stock splits and dividends. The divisor is used to ensure that the value of the index remains consistent over time despite changes in the number of outstanding shares. A more general formula may then be:

Index value

Where D is the divisor which is adjusted over time to account for events such as stock splits and dividends.

Use of the Nikkei 225 index in asset management

Asset managers have shifted their attention in recent years to including environmental, social, and governance (ESG) factors in their investment choices. A number of ESG-related initiatives, such as the development of an ESG index that tracks businesses with high ESG scores, have been introduced by the Nikkei 225 index. The Nikkei 225 index may also be used by asset managers as a component of a more comprehensive global asset allocation strategy. For example, they may use the index to gain exposure to the Asian equity markets while also investing in other regions such as Europe and the Americas. In addition, the Nikkei 225 index can also be used as a risk management tool. Asset managers can spot potential risks and take action to reduce them by comparing a portfolio’s performance to the index.

Benchmark for equity funds

Equity funds that invest in Japanese stocks frequently use the Nikkei 225 index as a benchmark. The index is used by investment managers and individual investors to assess and contrast the performance of their holdings of Japanese equities with the performance of the overall market. Japanese exchange-traded funds (ETFs) and other investment products that follow the Japanese equity market use the index as a benchmark as well. Additionally, derivatives like futures and options that enable investors to trade on the Japanese equity market are based on the Nikkei 225 index.

Financial products around the Nikkei 225 index

There are several financial products that track the performance of the Nikkei 225 index, allowing investors to gain exposure to the Japanese stock market.

  • Nikkei 225 ETFs are a popular way for investors to gain exposure to the Japanese equity market, as they offer a low-cost and convenient way to invest in a diversified basket of stocks. Some of the largest Nikkei 225 ETFs by assets under management include the iShares Nikkei 225 ETF (NKY), the Nomura Nikkei 225 ETF (1321), and the Daiwa ETF Nikkei 225 (1320).
  • There are also mutual funds and index funds that track the Nikkei 225 index. These funds typically have higher fees than ETFs but may offer different investment strategies or options for investors.
  • Certificates are structured products that allow investors to gain exposure to the Nikkei 225 index without actually owning the underlying assets.
  • Futures contracts based on the Nikkei 225 index are also available for investors who want to trade the index with leverage or for hedging purposes. These futures contracts trade on the Osaka Exchange, a subsidiary of the Japan Exchange Group.

Historical data for the Nikkei 225 index

How to get the data?

The Nikkei 225 index is the most common index used in finance, and historical data for the Nikkei 225 index can be easily downloaded from the internet.

For example, you can download data for the Nikkei 225 index from March 1, 1990 on Yahoo! Finance (the Yahoo! code for Nikkei 225 index is ^N225).

Yahoo! Finance
Source: Yahoo! Finance.

You can also download the same data from a Bloomberg terminal.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Nikkei 225 index.

Download R file

Data file

The R program that you can download above allows you to download the data for the Nikkei 225 index from the Yahoo! Finance website. The database starts on March 1, 1990. It also computes the returns (logarithmic returns) from closing prices.

Table 3 below represents the top of the data file for the Nikkei 225 index downloaded from the Yahoo! Finance website with the R program.

Table 3. Top of the data file for the Nikkei 225 index.
Top of the file for the Nikkei 225 index data
Source: computation by the author (data: Yahoo! Finance website).

Evolution of the Nikkei 225 index

Figure 1 below gives the evolution of the Nikkei 225 index from March 1, 1990 to December 30, 2022 on a daily basis.

Figure 1. Evolution of the Nikkei 225 index.
Evolution of the Nikkei 225 index
Source: computation by the author (data: Yahoo! Finance website).

Figure 2 below gives the evolution of the Nikkei 225 index returns from March 1, 1990 to December 30, 2022 on a daily basis.

Figure 2. Evolution of the Nikkei 225 index returns.
Evolution of the Nikkei 225 index return
Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Nikkei 225 index

The R program that you can download above also allows you to compute summary statistics about the returns of the Nikkei 225 index.

Table 4 below presents the following summary statistics estimated for the Nikkei 225 index:

  • The mean
  • The standard deviation (the squared root of the variance)
  • The skewness
  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 4. Summary statistics for the Nikkei 225 index.
Summary statistics for the Nikkei 225 index
Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Nikkei 225 index returns

Historical distribution

Figure 3 represents the historical distribution of the Nikkei 225 index daily returns for the period from March 1, 1990 to December 30, 2022.

Figure 3. Historical distribution of the Nikkei 225 index returns.
Historical distribution of the daily Nikkei 225 index returns
Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from March 1, 1990 to December 30, 2022. The mean of daily returns is equal to 0.02% and the standard deviation of daily returns is equal to 1.37% (or equivalently 3.94% for the annual mean and 28.02% for the annual standard deviation as shown in Table 3 above).

Figure 4 below represents the Gaussian distribution of the Nikkei 225 index daily returns with parameters estimated over the period from March 1, 1990 to December 30, 2022.

Figure 4. Gaussian distribution of the Nikkei 225 index returns.
Gaussian distribution of the daily Nikkei 225 index returns
Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Nikkei 225 index returns

The R program that you can download above also allows you to compute risk measures about the returns of the Nikkei 225 index.

Table 5 below presents the following risk measures estimated for the Nikkei 225 index:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)
  • The short-term volatility (the standard deviation estimated over the last three months)
  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)
  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)
  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)
  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the Nikkei 225 index.
Risk measures for the Nikkei 225 index
Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the Nikkei 225 index while the study of the right tail is relevant for an investor holding a short position in the Nikkei 225 index.

Financial maps

You can find financial world maps on the Extreme Events in Finance website. These maps represent the performance, risk and extreme risk in international equity markets.

Figure 5 below represents the world map for extreme risk estimated by the extreme value distribution (see Longin (2016 and 2000)).

Figure 5. Extreme risk map.
Extreme risk map
Source: Extreme Events in Finance.

Why should I be interested in this post?

For a number of reasons, management students (as future managers and individual investors) should learn about the Nikkei 225 index. The Nikkei 225 index is a key benchmark for the Japanese equity market, which is one of the world’s largest market. Understanding how the index is constructed, how it performs, and the companies that make up the index is important for anyone studying finance or business in Japan or interested in investing in Japanese equities.

Individual investors can assess the performance of their own investments in the Japanese equity market with the Nikkei 225 index. Last but not least, a lot of asset management firms base their mutual funds and exchange-traded funds (ETFs) on the Nikkei 225 index which can considered as interesting assets to diversify a portfolio. Learning about these products and their portfolio and risk management applications can be valuable for management students.

Related posts on the SimTrade blog

About financial indexes

   ▶ Nithisha CHALLA Financial indexes

   ▶ Nithisha CHALLA Calculation of financial indexes

   ▶ Nithisha CHALLA The business of financial indexes

   ▶ Nithisha CHALLA Float

Other financial indexes

   ▶ Nithisha CHALLA The S&P 500 index

   ▶ Nithisha CHALLA The FTSE 100 index

   ▶ Nithisha CHALLA The CSI 300 index

   ▶ Nithisha CHALLA The KOSPI 50 index

About portfolio management

   ▶ Youssef LOURAOUI Portfolio

   ▶ Jayati WALIA Returns

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Nikkei 225 index

Other

Extreme Events in Finance

Extreme Events in Finance Risk maps

Wikipedia Nikkei 225

About the author

The article was written in April 2023 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

The CAC 40 index

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The CAC 40 index

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023) presents the CAC 40 index and details its characteristics.

The CAC 40 index

The CAC 40 index is one of the main indices of the Paris Bourse. It was launched on December 31, 1987. CAC is the abbreviation for Cotation Assistée en Continu which translates to “Continuous Assisted Quotation”. CAC 40 is a benchmark stock market index that tracks the performance of the 40 largest and most actively traded companies on the Euronext Paris exchange.

The companies in the CAC 40 index represent a variety of industries, including financial services, energy, consumer goods, and technology. Some of the largest and most well-known companies in the index include Total, L’Oréal, and Sanofi. Due to its extremely diverse portfolio, it enables investors to view a variety of French industries.

The CAC 40 index uses a free-float market-capitalization weighting methodology, which means that only the shares that are available for trading are used to determine the index’s weighting.

Given that France is the second-largest economy in the European Union (EU), and the CAC 40 index plays an important role in the French economy, it is a good benchmark for investors. The companies included in the index account for a significant portion of the country’s GDP and provide employment for a large number of people.

While the CAC 40 is a French stock market index, many of the companies included in the index have a global reach and operate in multiple countries. As a result, the index can serve as a gauge for the wider European and global economies in addition to the French economy.

How is the CAC 40 index represented in trading platforms and financial websites? The ticker symbol used in the financial industry for the CAC 40 index is “PX1”.

Table 1 gives the Top 10 stocks in the CAC 40 index in terms of market capitalization as of January 31, 2023.

Table 1. Top 10 stocks in the CAC 40 index.
Top 10 stocks in the CAC 40 index
Source: computation by the author (data: YahooFinance! financial website).

Table 2 gives the sector representation of the CAC 40 index in terms of number of stocks and market capitalization as of January 31, 2023.

Table 2. Sector representation in the CAC 40 index.
Sector representation in the CAC 40 index
Source: computation by the author (data: YahooFinance! financial website).

Calculation of the CAC 40 index value

The value of the CAC 40 index is determined using a market-capitalization-weighted formula that is float-adjusted, which means that only the shares that are available for trading in the secondary market are used to determine the index weighting. This helps to ensure that the index is representative of the companies that are actively traded in the market.

The formula to compute the CAC 40 index is given by

Float Adjusted Market Capitalization Index value

where I is the index value, k a given asset, K the number of assets in the index, Pk the market price of asset k, Nk the number of issued shares for asset k, Fk the float factor of asset k, and t the time of calculation of the index.

In a float-adjusted market-capitalization-weighted index, the weight of asset k is given by formula can be rewritten as

Float Adjusted Market Capitalization Weighted Index Weight

The index is reviewed quarterly to ensure that it remains representative of the French stock market and to add or remove companies based on their size, liquidity, and sector classification.

Use of the CAC 40 index in asset management

The CAC 40 index is a useful tool for asset managers to manage risk because it is quite diverse and represents the French economy across a variety of industries. While the CAC 40 index is primarily composed of French companies, many of these companies also have significant international exposure. The CAC 40 index is one of Europe’s most liquid stock market indices, with a high level of trading volume and relatively low bid-ask spreads. This can be particularly important for investors who are looking to trade in and out of positions quickly, or for those who are managing large portfolios and need to execute trades efficiently. Some index funds and ETFs based on the CAC 40 index have particular ESG standards for the businesses they invest in. This may be appealing to investors who want to match their investments with their values.

Benchmark for equity funds

Equity funds are types of investment funds that invest primarily in stocks or shares of companies that are publicly traded. These funds give investors exposure to equity markets and offer the potential growth for capital appreciation in the long term. Given that it gives a good enough picture of the French market, there are multiple financial products around the index. Using these products can help investors diversify their holdings and control risk. The CAC 40 index can also be used to create multi-asset portfolios, acting as a representative of the portfolio’s equity component. By including the CAC 40 index in a multi-asset portfolio, investors can potentially achieve diversification and reduce risk through exposure to a broad range of companies in the French economy.

Financial products around the CAC 40 index

Financial products around the CAC 40 index offer investors a range of options to gain exposure to the French equity market, including products with sustainability and ESG considerations.

  • Investment funds traded like stocks are called exchange-traded funds, or ETFs. The Lyxor ETF CAC 40 is the largest ETF that tracks the CAC 40 index, and other ETFs that do so include the Amundi ETF CAC 40, the BNP Paribas Easy CAC 40, and the Xtrackers CAC 40
  • Some mutual funds and investment trusts that make CAC 40 index investments have an environmental, social, and governance (ESG) or sustainability focus. For instance, the CAC 40 index and European businesses with strong ESG performance are among the investments made by the Mirova Europe Sustainable Equity Fund
  • The main stock exchange in France, Euronext Paris, offers futures and options on the CAC 40 index. Institutional investors and traders use these highly liquid financial contracts
  • Structured products linked to the CAC 40 index can have various features, such as capital protection, leverage, and participation rate

Historical data for the CAC 40 index

How to get the data?

The CAC 40 index is the most common index used in finance, and historical data for the CAC 40 index can be easily downloaded from the internet.

For example, you can download data for the CAC 40 index from March 1, 1990 on Yahoo! Finance (the Yahoo! code for CAC 40 index is ^FCHI).

Yahoo! Finance
Source: Yahoo! Finance.

You can also download the same data from a Bloomberg terminal.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the CAC 40 index.

Download R file

Data file

The R program that you can download above allows you to download the data for the CAC 40 index from the Yahoo! Finance website. The database starts on March 1, 1990. It also computes the returns (logarithmic returns) from closing prices.

Table 3 below represents the top of the data file for the CAC 40 index downloaded from the Yahoo! Finance website with the R program.

Table 3. Top of the data file for the CAC 40 index.
Top of the file for the CAC 40 index data
Source: computation by the author (data: Yahoo! Finance website).

Evolution of the CAC 40 index

Figure 1 below gives the evolution of the CAC 40 index from March 1, 1990 to December 30, 2022 on a daily basis.

Figure 1. Evolution of the CAC 40 index.
Evolution of the CAC 40 index
Source: computation by the author (data: Yahoo! Finance website).

Figure 2 below gives the evolution of the CAC 40 index returns from March 1, 1990 to December 30, 2022 on a daily basis.

Figure 2. Evolution of the CAC 40 index returns.
Evolution of the CAC 40 index return
Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the CAC 40 index

The R program that you can download above also allows you to compute summary statistics about the returns of the CAC 40 index.

Table 4 below presents the following summary statistics estimated for the CAC 40 index:

  • The mean
  • The standard deviation (the squared root of the variance)
  • The skewness
  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 4. Summary statistics for the CAC 40 index.
Summary statistics for the CAC 40 index
Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the CAC 40 index returns

Historical distribution

Figure 3 represents the historical distribution of the CAC 40 index daily returns for the period from March 1, 1990 to December 30, 2022.

Figure 3. Historical distribution of the CAC 40 index returns.
Historical distribution of the daily CAC 40 index returns
Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from March 1, 1990 to December 30, 2022. The mean of daily returns is equal to 0.02% and the standard deviation of daily returns is equal to 1.37% (or equivalently 3.94% for the annual mean and 28.02% for the annual standard deviation as shown in Table 3 above).

Figure 4 below represents the Gaussian distribution of the CAC 40 index daily returns with parameters estimated over the period from March 1, 1990 to December 30, 2022.

Figure 4. Gaussian distribution of the CAC 40 index returns.
Gaussian distribution of the daily CAC 40 index returns
Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the CAC 40 index returns

The R program that you can download above also allows you to compute risk measures about the returns of the CAC 40 index.

Table 5 below presents the following risk measures estimated for the CAC 40 index:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)
  • The short-term volatility (the standard deviation estimated over the last three months)
  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)
  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)
  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)
  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the CAC 40 index.
Risk measures for the CAC 40 index
Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the CAC 40 index while the study of the right tail is relevant for an investor holding a short position in the CAC 40 index.

Why should I be interested in this post?

For a number of reasons, management students (as future managers and individual investors) should learn about the CAC 40 index. The performance of large-cap listed French companies is tracked by this stock market index, which is first and foremost well-known and respected. Gaining a deeper understanding of the French large-cap stock market and the businesses that fuel its expansion requires knowledge of the CAC 40 index.

Individual investors can assess the performance of their own investments and those of their organization by comprehending the CAC 40 index and its components. Last but not least, a lot of businesses base their mutual funds and exchange-traded funds (ETFs) on the CAC 40 index which can considered as interesting assets to diversify a portfolio.

Related posts on the SimTrade blog

About financial indexes

   ▶ Nithisha CHALLA Financial indexes

   ▶ Nithisha CHALLA Calculation of financial indexes

   ▶ Nithisha CHALLA The business of financial indexes

   ▶ Nithisha CHALLA Float

Other financial indexes

   ▶ Nithisha CHALLA The S&P 500 index

   ▶ Nithisha CHALLA The FTSE 100 index

   ▶ Nithisha CHALLA The CSI 300 index

   ▶ Nithisha CHALLA The Nikkei 225 index

   ▶ Nithisha CHALLA The DAX 30 index

About portfolio management

   ▶ Youssef LOURAOUI Portfolio

   ▶ Jayati WALIA Returns

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Other

Wikipedia CAC 40

FXCM Everything you need to know about the CAC 40 index

EFMAE The introduction of CAC40 Master unit

Data

Yahoo! Finance

Yahoo Finance CAC 40 index

About the author

The article was written in April 2023 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

Knowledge is power

by

Knowledge is power!

Jayna MELWANI

In this article, Jayna MELWANI (ESSEC Business School, Global BBA, 2019-2023) comments on a quote by Benjamin Franklin about the power of knowledge in finance.

“An investment in knowledge pays the best interest.” – Benjamin Franklin

Analysis of the quote

The quote suggests that investing in knowledge and education can be one of the most profitable investments a person can make. This is because knowledge and skills are assets that can appreciate over time, leading to greater personal and professional success. When people invest in themselves through education and self-improvement, they can develop skills and knowledge that can lead to better job opportunities, higher salaries, and more fulfilling careers. Additionally, by staying informed and up-to-date on trends and developments in their field, they can position themselves to be more successful over the long term.

In the context of personal finance, the quote implies that investing in one’s own education and skills can be more valuable than simply focusing on accumulating wealth through savings or investments. While it is important to save and invest wisely, the returns on those investments may be limited without the skills and knowledge needed to identify opportunities and make informed decisions.

About the author of the quote

Benjamin Franklin is one of the founding fathers of the United States and a prominent inventor, writer, and statesman.

Financial concepts related to the quote

The financial concepts related to this quote include the following:

Return on investment (ROI)

ROI refers to the amount of profit or benefit earned on an investment relative to the cost of the investment. In the context of the quote, the ROI on investing in knowledge is believed to be high, as the benefits of knowledge can be long-lasting and contribute to personal and professional success over time.

Time Value of Money

The time value of money refers to the idea that money received in the future is worth less than money received today due to the effects of inflation and the opportunity cost of not being able to invest that money today. Investing in knowledge can provide a long-term return on investment that can increase in value over time, potentially providing a higher return than other types of investments.

Risk and Return

The concept of risk and return refers to the idea that higher risk investments typically offer higher potential returns, while lower risk investments typically offer lower potential returns. Investing in knowledge can be considered a low-risk investment with potentially high returns, as knowledge gained can help individuals make better financial decisions, potentially leading to higher financial rewards in the long term.

Human Capital

Human capital refers to the skills, knowledge, and abilities that individuals possess that can increase their value in the job market and contribute to their earning potential. Investing in knowledge can increase an individual’s human capital, leading to higher income and financial stability in the long term.

Opportunity cost

Opportunity cost refers to the cost of choosing one option over another, including the potential benefits of the option that was not chosen. Investing in knowledge may require a time and financial investment, but the potential benefits of increased knowledge and skills can outweigh the opportunity cost of not investing in oneself.

Compound interest

Compound interest refers to the interest earned on both the principal and the accumulated interest from previous periods. Investing in knowledge can provide a similar effect, as the knowledge gained can be applied over time to further increase one’s earning potential and financial success.

Overall, the financial concepts related to the quote emphasize the value of investing in oneself through education and self-improvement. Just as investing in financial assets can yield returns, investing in knowledge can yield returns in the form of personal and professional growth, which can lead to increased financial stability and success.

My opinion about this quote

In my opinion, this quote highlights the importance of continuous learning and self-improvement as a means to achieve greater success and financial security. I believe that anyone can take your money from you, but no one can take your education away from you.

Why should I be interested in this post?

Business students and students in general are advised to make the most of their education and in fact, continue to educate themselves as having a good education can provide a solid foundation for future success.

Related posts on the SimTrade blog

   ▶ All posts about Quotes

   ▶ Pranay KUMAR Time is money

   ▶ Fatimata KANE Money is a terrible master but an excellent servant

   ▶ Federico MARTINETTO Money never sleeps

Useful resources

SimTrade course Discover SimTrade

About the author

The article was written in April 2023 by Jayna MELWANI (ESSEC Business School, Global BBA, 2019-2023).

My professional experience as a Global Development and Learning Intern at Danone

by

My professional experience as a Global Development and Learning Intern at Danone

Jayna MELWANI

In this article, Jayna MELWANI (ESSEC Business School, Global BBA, 2019-2023) shares her professional experience as a Global Development and Learning Intern at Danone, the world’s leading food company.

About Danone

Danone is a multinational food and beverage corporation that is headquartered in Paris, France. The company produces a wide range of dairy products, water and plant-based food and beverages. Some of the most popular brands owned by Danone include Activia, Evian, Actimel and Danette.

Danone operates in over 120 countries and has more than 100,000 employees worldwide. The company’s mission is to provide health-focused food and beverage products that contribute to the well-being of individuals and the environment.

In addition to its commercial activities, Danone is also committed to promoting sustainable practices and social responsibility. The company has made significant investments in sustainability initiatives such as reducing greenhouse gas emissions, improving water usage efficiency and investing in regenerative agriculture.

Danone is a leading food and beverage company with a strong commitment to health and sustainability. Its portfolio of popular brands and global reach make it a major player in the industry.

Logo of Danone.
Logo of Danone
Source: the company.

The Global Learning Team at Danone

I was part of the Global Learning team at Danone in its headquarters in Paris. It is a team of approximately 15 people who are responsible for launching and maximizing the global learning agenda for the various functions such as Sales & Marketing, Research & Innovation, IT & Data, etc. I was in charge of supporting the global learning agenda for General Secretary, IT & Data and Sustainability.

The global learning and development team at Danone is responsible for creating and implementing programs to support the professional development of employees throughout the company. The team’s mission is to provide employees with the knowledge and skills they need to excel in their roles, grow within the organization and contribute to the company’s overall success.

Some of the key responsibilities of the learning and development team at Danone include:

  • Developing training programs: The team designs training programs that are tailored to the specific needs of different departments and job functions. They can be on-the-job training, e-learning modules, and workshops. For example, I worked closely with the General Secretary team to develop Compliance e-learning modules to be done by all employees worldwide.
  • Managing learning technologies: The team is responsible for managing the learning management system (LMS) used by the company. This includes maintaining the system, monitoring its effectiveness and ensuring that employees have access to the resources they need.

My Experience at Danone

During my internship at Danone, my missions were to support the global learning agenda for the following functions: IT & Data, and General Secretary & Sustainability. My main responsibilities were supporting the implementation of the learning portfolio, liaising with local learning teams to ensure the proper local deployment of the learning activities, measuring and reporting worldwide completion, managing suppliers, and contracts with external learning providers.

It was a 6-month internship that went by very quickly. My day-to-day responsibilities were mainly dealing with the LMS and building reports and dashboards for stakeholders. Though, I was also leading a number of global projects at the same time. One notable project I led was the Compliance campaign. Danone trains its employees worldwide every year on compliance as part of its compliance obligations with external auditors. I led the communications, reporting and stakeholder engagement for this project.

I was also responsible for negotiating deals with external learning providers for upcoming projects. Because of this, I was able to negotiate prices, measuring costs and opportunity costs of learning initiatives.

What I learned during my internship

The main things I learned during my internship at Danone are:

  • I learned how to create powerful AI dashboards to analyze raw reporting data and quickly turn them into insightful analysis.
  • I gained many soft skills such as stakeholder management, interpersonal communication, and negotiation skills.
  • I discovered my passion for health and sustainability and my love for the food and beverage industry.
  • I learned about HR digitalization through innovative technology such as digital onboarding and people analytics.

Financial concepts related my internship

Return on investment (ROI)

ROI is a financial metric that measures the profitability of an investment. In the context of my internship, ROI was used to evaluate the effectiveness of training programs and other development initiatives.

Opportunity Cost

Opportunity cost is the cost of forgoing one option in favor of another. In the context of my internship, the learning team must consider the opportunity cost of investing in employee development vs other potential investments.

Cost-benefit analysis

Cost-benefit analysis is a financial tool that compares the costs and benefits of different options. In the context of learning and development, the learning team can use cost-benefit analysis to evaluate the potential return on investment of different training and development programs. By comparing the costs, the team can make informed decisions about which initiatives to prioritize.

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   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful resources

Danone

About the author

The article was written in April 2023 by Jayna MELWANI (ESSEC Business School, Global BBA, 2019-2023).

The impact of market orders on market liquidity

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The impact of market orders on market liquidity

Jayna MELWANI

In this article, Jayna MELWANI (ESSEC Business School, Global BBA, 2019-2023) explains about the financial concept of market liquidity and specifically the impact of market orders on market liquidity.

What is a market order?

A market order is a type of order used in trading that instructs the broker to buy or sell a security immediately at the prevailing market price. Market orders are used when the trader wants to execute the trade quickly and does not want to wait for a specific price.

What is market liquidity and how do market orders affect it?

The impact of a market order on market liquidity can be significant. Market liquidity refers to the ability of traders to buy and sell securities quickly and easily without causing significant changes in the price. When a large number of market orders are executed, it can impact the liquidity of the market by causing sharp changes in the supply and demand for the securities being traded.

For example, if a large number of market orders are executed to sell a particular stock, it can result an increase in supply of the stock in the market, which can cause the price to drop significantly. Similarly, if a large number of market orders are executed to buy a particular stock, it can result in an increase in demand for the stock, which can cause the price to rise sharply.

In addition to impacting the price of the security being traded, market orders can also impact the liquidity of the market as a whole. When market orders are executed, it can cause sudden changes in the supply and demand for securities, which can impact the ability of other traders to buy or sell securities at favorable prices. This can make it more difficult for traders to execute their trades quickly and efficiently, which can reduce overall market liquidity.

Overall, the impact of a market order on market liquidity depends on several factors, including the size of the order, the liquidity of the security being traded, and the overall market conditions. Traders who use market orders should be aware of the potential impact on market liquidity and consider using other types of orders, such as limit orders or stop orders, to minimize the impact of their trades on the market. By doing so, traders can help to ensure that the market remains liquid and efficient, which benefits all market participants.

Why should I be interested in this post?

Understanding market liquidity is important for making informed investment decisions. As business school students, understanding market liquidity can help to make more informed decisions as assets with high liquidity are generally easier to buy and sell quickly and at a fair price.

By understanding market liquidity, students can gain insight into how financial markets work and how liquidity affects asset prices. This knowledge can help students better analyze market trends, predict market movements and make informed investment decisions.

Furthermore, for students pursuing a career in finance, understanding market liquidity can be a valuable asset. Financial institutions and investment firms value employees who possess a deep understanding of market dynamics, including market liquidity.

Related posts on the SimTrade blog

▶ Federico DE ROSSI Understanding the Order Book: How It Impacts Trading

▶ Lokendra RATHORE Good-til-Cancelled (GTC) order and Immediate-or-Cancel (IOC) order

▶ Clara PINTO High-frequency trading and limit orders

Useful resources

SimTrade course Trade orders

About the author

The article was written in April 2023 by Jayna MELWANI (ESSEC Business School, Global BBA, 2019-2023).

The Wilshire 5000 index

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The Wilshire 5000 index

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023) presents the Wilshire 5000 index and details its characteristics.

The Wilshire 5000 index

The Wilshire 5000 index was launched in 1974 by Wilshire Associates, an investment management company based in California. It monitors the performance of almost all publicly traded stocks in the US. This index is still currently managed by Wilshire Associates. The index name came from the fact that it initially contained about 5,000 U.S. stocks; however, it has since grown to include over 3,500 more stocks, bringing the total to close to 8,500 stocks, which more or less comprehensively represents the majority of the US equity market.

The Wilshire 5000 index is a float-adjusted, market-capitalization weighted index. As a result, rather than using the total number of shares outstanding, the index weights of each stock are changed to reflect the number of shares that are currently trading on the market. This makes it possible for the index to accurately reflect each company’s market capitalization rather than just the theoretical value of all outstanding shares.

The Wilshire 5000 index is distinctive in that it includes small- and mid-cap stocks in addition to large-cap stocks. This distinguishes it from other well-known indices like the S&P 500 or the Dow Jones Industrial Average, which only include large-cap stocks, as a more complete indicator of the American stock market. With a few exceptions, such as penny stocks and stocks that trade on over-the-counter markets, the index was created to include almost all publicly traded stocks in the US equity market.

How is the Wilshire 5000 index represented in trading platforms and financial websites? The ticker symbol used in the financial industry for the Wilshire 5000 index is “W5000”.

Table 1 below gives the Top 10 stocks in the Wilshire 5000 index in terms of market capitalization as of January 31, 2023.

Table 1. Top 10 stocks in the Wilshire 5000 index.
Top 10 stocks in the Wilshire 5000 index
Source: computation by the author (data: Yahoo! Finance website).

Table 2 below gives the sector representation of the Wilshire 5000 index in terms of number of stocks and market capitalization as of January 31, 2023.

Table 2. Sector representation in the Wilshire 5000 index.
Sector representation in the Wilshire 5000 index
Source: computation by the author (data: Yahoo! Finance website).

Calculation of the Wilshire 5000 index value

The Wilshire 5000 index is determined using a market-capitalization-weighted formula that is float-adjusted, which means that only the shares that are available for trading in the secondary market are used to determine the index weighting. This helps to ensure that the index is representative of the companies that are actively traded in the market.

The formula to compute the Wilshire 5000 is given by

Float-adjusted market-capitalization-weighted index value

where I is the index value, k a given asset, K the number of assets in the index, Pk the market price of asset k, Nk the number of issued shares for asset k, Fk the float factor of asset k, and t the time of calculation of the index.

In a float-adjusted market-capitalization-weighted index, the weight of asset k is given by formula can be rewritten as

Float-adjusted market-capitalization-weighted index weight

To make sure the index remains a reliable representation of the US equity market, it is rebalanced every quarter. The stocks that are chosen for inclusion in the index are chosen by Wilshire Associates, the index’s creator. When deciding which stocks to include, the company takes into account a variety of variables, including market capitalization, liquidity, and additional fundamentals like earnings and revenue growth.

Use of the Wilshire 5000 index in asset management

By comparing the volatility of their portfolio to the market as a whole, asset managers can use the Wilshire 5000 index to manage portfolio risk. Asset managers can use the index to determine the best-performing industries and sectors before choosing specific stocks to build a portfolio that is well-balanced. They can determine whether their portfolio is more or less risky than the market by examining the correlation between their portfolio and the Wilshire 5000 index. This enables them to establish whether their superior performance is the result of their ability to select stocks or whether it is simply the result of taking on greater risk than the market.

The Wilshire 5000 index is also used in various types of investment strategies, such as sector rotation and tactical asset allocation. These strategies entail using the index to find investment opportunities in particular industries or to make tactical asset class switches based on market performance.

Benchmark for equity funds

The Wilshire 5000 index is commonly used as a benchmark for equity funds because it represents a broad measure of the US equity market. It is often used by investment managers as a tool for asset allocation and performance evaluation. The Wilshire 5000 index is further divided into a number of sub-indices according to market capitalization, style, and sector. With the help of these sub-indices, investors can monitor the performance of particular sectors of the US stock market and design investment plans that are unique to their needs.

Academic studies frequently use the Wilshire 5000 index to examine US equity market behavior and test theories regarding the effectiveness and predictability of stock prices. In financial and economic modeling, it is frequently used as a benchmark.

Financial products around the Wilshire 5000 index

A number of financial products, including mutual funds, exchange-traded funds (ETFs), and index funds, use the Wilshire 5000 index as a benchmark. These products use investments in a diverse portfolio of the underlying securities to track the performance of the index.

  • The Vanguard Total Stock Market Index Fund, which invests in all of the securities in the Wilshire 5000 index in the same proportion as the index and aims to replicate the performance of the index, is one of the mutual funds that tracks the Wilshire 5000 index.
  • The SPDR Wilshire 5000 ETF is one example of an ETF that tracks the Wilshire 5000 index. ETFs can be bought and sold at any time during the trading day, just like stocks.
  • Futures contracts based on the Wilshire 5000 index are available for trading on futures exchanges. Investors can use these contracts to hedge their existing positions or make predictions about the index’s future course.
  • Index funds that follow the Wilshire 5000 index are an alternative to mutual funds and ETFs. These funds are frequently used by passive investors who want exposure to the larger U.S. equity market because they aim to closely replicate the performance of the index.

Historical data for the Wilshire 5000 index

How to get the data?

The Wilshire 5000 index is the most common index used in finance, and historical data for the Wilshire 5000 index can be easily downloaded from the internet.

For example, you can download data for the Wilshire 5000 index from January 3, 1989 on Yahoo! Finance (the Yahoo! code for Wilshire 5000 index is ^W5000).

Yahoo! Finance
Source: Yahoo! Finance.

You can also download the same data from a Bloomberg terminal.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Wilshire 5000 index.

Download R file

Data file

The R program that you can download above allows you to download the data for the Wilshire 5000 index from the Yahoo! Finance website. The database starts on January 3, 1989. It also computes the returns (logarithmic returns) from closing prices.

Table 3 below represents the top of the data file for the Wilshire 5000 index downloaded from the Yahoo! Finance website with the R program.

Table 3. Top of the data file for the Wilshire 5000 index.
Top of the file for the Wilshire 5000 index data
Source: computation by the author (data: Yahoo! Finance website).

Evolution of the Wilshire 5000 index

Figure 1 below gives the evolution of the Wilshire 5000 index from January 3, 1989 to December 30, 2022 on a daily basis.

Figure 1. Evolution of the Wilshire 5000 index.
Evolution of the Wilshire 5000 index
Source: computation by the author (data: Yahoo! Finance website).

Figure 2 below gives the evolution of the Wilshire 5000 index returns from January 3, 1989 to December 30, 2022 on a daily basis.

Figure 2. Evolution of the Wilshire 5000 index returns.
Evolution of the Wilshire 5000 index return
Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Wilshire 5000 index

The R program that you can download above also allows you to compute summary statistics about the returns of the Wilshire 5000 index.

Table 4 below presents the following summary statistics estimated for the Wilshire 5000 index:

  • The mean
  • The standard deviation (the squared root of the variance)
  • The skewness
  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 4. Summary statistics for the Wilshire 5000 index.
Summary statistics for the Wilshire 5000 index
Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Wilshire 5000 index returns

Historical distribution

Figure 3 represents the historical distribution of the Wilshire 5000 index daily returns for the period from January 3, 1989 to December 30, 2022.

Figure 3. Historical distribution of the Wilshire 5000 index returns.
Historical distribution of the daily Wilshire 5000 index returns
Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from January 3, 1989 to December 30, 2022. The mean of daily returns is equal to 0.02% and the standard deviation of daily returns is equal to 1.20% (or equivalently 5.88% for the annual mean and 19.38% for the annual standard deviation as shown in Table 3 above).

Figure 4 below represents the Gaussian distribution of the Wilshire 5000 index daily returns with parameters estimated over the period from January 3, 1989 to December 30, 2022.

Figure 4. Gaussian distribution of the Wilshire 5000 index returns.
Gaussian distribution of the daily Wilshire 5000 index returns
Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Wilshire 5000 index returns

The R program that you can download above also allows you to compute risk measures about the returns of the Wilshire 5000 index.

Table 5 below presents the following risk measures estimated for the Wilshire 5000 index:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)
  • The short-term volatility (the standard deviation estimated over the last three months)
  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)
  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)
  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)
  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the Wilshire 5000 index.
Risk measures for the Wilshire 5000 index
Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the Wilshire 5000 index while the study of the right tail is relevant for an investor holding a short position in the Wilshire 5000 index.

Why should I be interested in this post?

For a number of reasons, management students (as future managers and individual investors) should learn about the Wilshire 5000 index. The performance of almost all listed American companies is tracked by this stock market index, which is first and foremost well-known and respected. Gaining a deeper understanding of the US small-cap stock market and the businesses that fuel its expansion requires knowledge of the Wilshire 5000 index. Individual investors can assess the performance of their own investments and those of their organization by comprehending the Wilshire 5000 index and its components. Last but not least, a lot of businesses base their mutual funds and exchange-traded funds (ETFs) on the Wilshire 5000 index which can considered as interesting assets to diversify a portfolio.

Related posts on the SimTrade blog

About financial indexes

   ▶ Nithisha CHALLA Financial indexes

   ▶ Nithisha CHALLA Calculation of financial indexes

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About financial indexes

   ▶ Nithisha CHALLA Financial indexes

   ▶ Nithisha CHALLA Calculation of financial indexes

   ▶ Nithisha CHALLA The business of financial indexes

   ▶ Nithisha CHALLA Float

About other US financial indexes

   ▶ Nithisha CHALLA The DJIA index

   ▶ Nithisha CHALLA The S&P 500 index

   ▶ Nithisha CHALLA The NASDAQ index

   ▶ Nithisha CHALLA The Russell 2000 index

About portfolio management

   ▶ Youssef LOURAOUI Portfolio

   ▶ Jayati WALIA Returns

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

Useful resources

Yahoo! Finance Wilshire 5000 Total Market Index

Wikipedia Wilshire 5000

Forbes The Wilshire 5000: Invest In The Entire U.S. Stock Market

The Street What Is the Wilshire 5000 and Why Is It Important?

Academic research

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Data for the Wilshire 5000 index

About the author

The article was written in April 2023 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

Time is money

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Time is money

Pranay KUMAR

In this article, Pranay KUMAR (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023) comments on a quote about the time value of money.

Quote

“Remember that time is money.” – Benjamin Franklin

Analysis of the quote

Time value of money is the concept that the value of money changes over time due to various factors, such as inflation, interest rates, and the opportunity cost of investing or borrowing money.

In the context of Franklin’s quote, he is suggesting that time is as valuable as money. This implies that every moment lost is an opportunity lost, just like losing money. This is because the time we spend on an activity or investment can have an impact on its potential future value.
For instance, if we invest money today, it will grow in value over time due to interest and compounding. Therefore, the longer we wait to invest, the less potential value we can derive from that investment. Similarly, if we delay taking action on an opportunity, we risk losing its potential value as time goes by.

In summary, Benjamin Franklin’s quote can be interpreted as a reminder to be mindful of the time value of money. We should strive to use our time effectively, just as we would with our money, in order to maximize its potential value.

About the author of the quote

Benjamin Franklin was a Founding Father of the United States and a polymath who excelled in many fields, including science, writing, and politics. He was also an inventor, diplomat, and one of the most influential figures of the American Enlightenment. Franklin was known for his wit, wisdom, and practical advice. This quote reflects his pragmatic approach to life and his belief in the value of hard work and frugality. Franklin was a self-made man who rose from humble beginnings to become one of the most respected and admired figures of his time.

Financial concepts related to the quote

Time Value of Money

The concept of time value of money suggests that the value of money today is worth more than the same amount of money in the future, due to the potential for earning interest or returns on investment.

Compounding

Compounding is the process of earning interest on interest. It occurs when interest is added to the principal amount, and the interest earned on the new total is calculated in the next period. This results in the investment growing at an accelerating rate over time.

Opportunity cost

Opportunity cost is the cost of forgoing an opportunity or the benefits that could have been gained from an alternative choice. In the context of the quote, the opportunity cost of not investing earlier is the potential returns that could have been earned if the investment had been made earlier.

My opinion about this quote

I believe this quote is a reminder that it is never too late to start investing or saving. While it is true that starting early provides an advantage in terms of the time value of money, it is better to start late than never. By taking action now, individuals can still benefit from the power of compounding and the potential for returns on their investments.

Why should I be interested in this post?

This post is relevant for ESSEC students interested in finance and investing. The concept of time value of money is fundamental to understanding financial decision-making, and this post provides a simple explanation of the concept and its relevance in real life.

Related posts on the SimTrade blog

Quotes

   ▶ All posts about Quotes

   ▶ Jianen HUANG It’s not whether you’re right or wrong

   ▶ Fatimata KANE Money is a terrible master but an excellent servant

Financial techniques

   ▶ William LONGIN How to compute the present value of an asset?

   ▶ Maite CARNICERO MARTINEZ How to compute the net present value of an investment in Excel

Useful resources

Time Value of Money

About the author

The article was written in April 2023 by Pranay KUMAR (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023).

La Directive Solvabilité II

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Shengyu ZHENG

Dans cet article, Shengyu ZHENG (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023) présente la directive Solvabilité II pour les compagnies d’assurance.

Vue globale

Solvabilité II (surnom de la Directive 2009/138/CE du Parlement européen et du Conseil du 25 novembre 2009) est une réglementation européenne qui s’applique aux compagnies d’assurance. Elle a pour objectif de renforcer la solidité financière des assureurs et de garantir leur capacité à faire face à des situations imprévues. Pour atteindre ces objectifs, la directive Solvabilité II impose aux compagnies d’assurance des exigences en matière de solvabilité, de gouvernance et de communication. Elle exige également une gestion prudente des risques, notamment en imposant des normes strictes pour l’évaluation et la gestion des risques. La directive Solvabilité II a été conçue pour encourager les assureurs à améliorer leur gestion interne et en particulier à mieux gérer leurs fonds propres (capital), ce qui devrait leur permettre de mieux protéger les assurés et de garantir leur stabilité financière à long terme.

Histoire de mise en œuvre

La directive Solvabilité II a été mise en œuvre en réponse à la crise financière de 2008, pour remplacer la directive Solvabilité I, qui était en vigueur depuis les années 1970. Les exigences imposées par la directive Solvabilité I se sont avérées obsolètes et insuffisantes pour répondre aux défis des développements financiers et économiques, notamment mise en évidence par les survenances des crises financières au début du 21e siècle. Solvabilité II présente plusieurs avantages clés, notamment une harmonisation des exigences de solvabilité à travers l’Union Européenne (UE), une plus grande transparence et des méthodologies plus modernes en gestion des risques d’assurance. La directive a été adoptée par le Parlement Européen en 2009 et est entrée en vigueur en 2016.

En France, la directive Solvabilité II a été transposée en droit national par l’ordonnance n° 2015-378 du 2 avril 2015 et la loi n° 2016-1691 du 9 décembre 2016. Ces textes modifient le Code des assurances et mettent en place un nouveau régime de surveillance prudentielle des assureurs/réassureurs. Les assureurs/réassureurs sont désormais tenus de se conformer aux exigences de Solvabilité II transcrites en texte de droit.

Les trois piliers de Solvabilité II

Solvabilité II s’appuie sur trois piliers, chacun ayant un objectif spécifique.

Pilier I : Normes quantitatives

Le premier pilier de la directive Solvabilité II établit les normes quantitatives pour le calcul des provisions techniques et des fonds propres. Les compagnies d’assurance doivent déterminer les provisions techniques, qui sont les montants réservés pour payer les sinistres futurs. Les niveaux réglementaires pour les fonds propres sont également définis dans ce pilier. Les fonds propres constituent la base financière des compagnies d’assurance et leur permettent de faire face aux risques auxquels elles sont exposées. Les deux ratios clés constamment utilisés pour évaluer les niveaux de fonds propres sont le Minimum Capital Requirement (MCR) et le Solvency Capital Requirement (SCR).

Pilier II : Normes qualitatives

Le deuxième pilier a pour objectif de fixer des normes qualitatives pour la gestion interne des risques dans les entreprises, ainsi que pour l’exercice des pouvoirs de surveillance par les autorités de réglementation. Il accentue le système de gouvernance et l’évaluation interne des risques et de la solvabilité, notamment via l’application du dispositif “Own Risk and Solvency Assessment (ORSA)”. L’identification des entreprises les plus risquées est également un objectif clé de ce pilier, et les autorités de réglementation peuvent exiger que ces entreprises maintiennent un capital plus élevé que le montant recommandé par le calcul du SCR (capital add-on) et/ou qu’elles réduisent leur exposition aux risques.

Pilier III : Communication d’information

Le troisième pilier a pour objectif de définir les informations détaillées auxquelles le public peut accéder et celles destinées aux autorités de réglementation et de contrôle. Son objectif est de standardiser, au niveau européen, les informations publiées et remises aux superviseurs. Les informations peuvent être de nature qualitative ou quantitative, et la fréquence de publication peut varier en fonction des documents concernés.

Pourquoi devons-nous nous intéresser à ce sujet ?

En tant qu’étudiants qui aspirent à une carrière dans ce secteur, nous avons tout intérêt à comprendre les enjeux de Solvabilité II, car cette directive a un impact majeur sur l’industrie de l’assurance en Europe. En effet, elle impose des exigences strictes en matière de gestion des risques et de solvabilité des compagnies d’assurance, ce qui a des répercussions sur l’ensemble de l’industrie quel que soit la fonction (actuariat, investissement, trésorerie…). Les étudiants qui souhaitent se lancer dans une carrière dans le secteur de l’assurance doivent donc comprendre les tenants et les aboutissants de cette réglementation pour mieux appréhender les défis et les opportunités du marché.

De plus, les étudiants en économie, en finance ou en droit peuvent également bénéficier d’une meilleure compréhension de cette directive, qui est un exemple concret de la manière dont les réglementations financières sont mises en place pour garantir la stabilité du marché et la protection des consommateurs. Enfin, en se tenant informés des dernières évolutions de Solvabilité II, les étudiants peuvent développer des compétences clés telles que la compréhension des réglementations financières et l’analyse des risques, qui sont essentielles pour réussir dans une carrière dans le secteur de l’assurance ou dans des secteurs connexes.

Ressources utiles

EUR-Lex, Directive 2009/138/CE du Parlement européen et du Conseil du 25 novembre 2009 sur l’accès aux activités de l’assurance et de la réassurance et leur exercice (solvabilité II) (Texte présentant de l’intérêt pour l’EEE)

A propos de l’auteur

Cet article a été écrit en avril 2023 par Shengyu ZHENG (ESSEC Business School, Grande Ecole – Master in Management, 2020-2023).

The Russell 2000 index

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The Russell 2000 index

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023) presents the Russell 2000 index and details its characteristics.

The Russell 2000 index

As we can already notice in the name, Russell 2000 Index is a stock market index that tracks the performance of 2,000 small-cap companies in the United States. It was introduced by the Russell Investment Group in 1984 and is now created, managed, and distributed by FTSE Russell, a subsidiary of the London Stock Exchange Group. The Russell Index family has three indexes in it, Russell 1000, Russell 2000 and the Russell 3000.

The Russell 2000 has historically outperformed the larger-cap S&P 500 Index over the long term. According to data from FTSE Russell, the Russell 2000 has returned an average of 10.7% annually over the past 20 years, compared to an average return of 7.5% for the S&P 500 over the same period.

The Russell 2000 is widely used as a benchmark by active fund managers who specialize in small-cap stocks. As of March 2023, the largest sector in the Russell 2000 was healthcare, followed by technology and financials. The index is market-capitalization weighted, which means that larger companies have a greater impact on the index performance. The index is also used as the basis for exchange-traded funds (ETFs) and other financial products that allow investors to gain exposure to small-cap stocks.

FTSE Russell is known for its commitment to transparency and the accuracy of its index calculations. The company uses a rules-based methodology for selecting and weighting stocks in its indices, and it provides detailed documentation on its methodology and data sources to ensure that investors can make informed decisions about using its indices for benchmarking and investment purposes.

How is the Russell 2000 index represented in trading platforms and financial websites? The ticker symbol used in the financial industry for the Russell 2000 index is “RUT”.

Table 1 below gives the Top 10 stocks in the Russell 2000 index in terms of market capitalization as of January 31, 2023.

Table 1. Top 10 stocks in the Russell 2000 index.
Top 10 stocks in the Russell 2000 index
Source: computation by the author (data: YahooFinance! financial website).

Table 2 gives the sector representation of the Russell 2000 index in terms of number of stocks and market capitalization as of January 31, 2023.

Table 2. Sector representation in the Russell 2000 index.
Sector representation in the Russell 2000 index
Source: computation by the author (data: YahooFinance! financial website).

Calculation of the Russell 2000 index value

The value of the Russell 2000 Index is calculated using a formula that takes into account the market capitalization of the individual stocks that are included in the index. This means the larger companies have a greater impact on the index than the smaller companies.

The Russell 2000 is reconstituted annually, typically in June. During this process, the index is updated to include the most recent data on small-cap stocks, and companies are added or removed from the index based on their market capitalization.

The formula for a market capitalization-weighted index is given by

Market Capitalization Index value

where I is the index value, k a given asset, K the number of assets in the index, Pk the market price of asset k, Nk the number of issued shares for asset k, and t the time of calculation of the index.

In a market capitalization-weighted index, the weight of asset k is given by formula can be rewritten as

Market Capitalization Weighted Index Weight

which clearly shows that the weight of each asset in the index is its market capitalization of the asset divided by the sum of the market capitalizations of all assets.

Note that the divisor, whose calculation is based on the number of shares, is typically adjusted for events such as stock splits and dividends. The divisor is used to ensure that the value of the index remains consistent over time despite changes in the number of outstanding shares.

Use of the Russell 2000 index in asset management

The Russell 2000 index is widely used in asset management as a benchmark for small-cap stocks in the United States. Small-cap stock experts who run active funds frequently use the Russell 2000 as a benchmark for their performance. On the other hand, passive fund managers can create index funds or exchange-traded funds (ETFs) that follow the performance of the Russell 2000 using the Russell 2000 as a base. In addition to serving as a benchmark for active and passive fund managers, the Russell 2000 index is also used by individual investors who are interested in small-cap stocks. Overall, the Russell 2000 index is a valuable tool for asset managers, and it has a significant impact on the investment strategies and decisions made in this market segment.

Benchmark for equity funds

Equity funds are actively managed investment vehicles that pool capital from a number of investors to buy stocks from a variety of industries. The Russell 2000 index serves as a benchmark for fund managers when assessing the performance of their small-cap equity funds. Fund managers might use a variety of investment strategies, such as top-down sector allocation or bottom-up stock selection, to outperform the benchmark.

Investors can get a good idea of how well a small-cap equity fund is doing in relation to the overall market by comparing the fund’s performance to that of the Russell 2000 index. However, it’s crucial to keep in mind that there are additional elements, such as fees, expenses, and the expertise and experience of the fund manager, that can impact the performance of an equity fund.

Financial products around the Russell 2000 index

There are a number of financial products that either provide exposure to the index or use information from the index. Not just the index funds but there are numerous ETFs and other financial products such as mutual funds, futures and options etc.

  • Exchange-Traded Funds, Options Contracts, Futures Contracts, Index funds and Mutual funds.
  • ETFs are the investment funds that are traded like stocks. ETFs based on the Russell 2000 Index include the iShares Russell 2000 ETF and the Vanguard Russell 2000 ETF.
  • Index mutual funds that track the performance of the Russell 2000 Index typically have low expense ratios and are designed to provide returns that closely match the performance of the index.
  • Futures and options contracts based on the Russell 2000 Index are traded on several exchanges, including the Chicago Mercantile Exchange (CME) and the Intercontinental Exchange (ICE).

Historical data for the Russell 2000 index

How to get the data?

The Russell 2000 index is the most common index used in finance, and historical data for the Russell 2000 index can be easily downloaded from the internet.

For example, you can download data for the Russell 2000 index from September 10, 1987 on Yahoo! Finance (the Yahoo! code for Russell 2000 index is ^RUT).

Yahoo! Finance
Source: Yahoo! Finance.

You can also download the same data from a Bloomberg terminal.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Russell 2000 index.

Download R file

Data file

The R program that you can download above allows you to download the data for the Russell 2000 index from the Yahoo! Finance website. The database starts on September 10, 1987. It also computes the returns (logarithmic returns) from closing prices.

Table 3 below represents the top of the data file for the Russell 2000 index downloaded from the Yahoo! Finance website with the R program.

Table 3. Top of the data file for the Russell 2000 index.
Top of the file for the Russell 2000 index data
Source: computation by the author (data: Yahoo! Finance website).

Evolution of the Russell 2000 index

Figure 1 below gives the evolution of the Russell 2000 index from September 10, 1987 to December 30, 2022 on a daily basis.

Figure 1. Evolution of the Russell 2000 index.
Evolution of the Russell 2000 index
Source: computation by the author (data: Yahoo! Finance website).

Figure 2 below gives the evolution of the Russell 2000 index returns from September 10, 1987 to December 30, 2022 on a daily basis.

Figure 2. Evolution of the Russell 2000 index returns.
Evolution of the Russell 2000 index return
Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Russell 2000 index

The R program that you can download above also allows you to compute summary statistics about the returns of the Russell 2000 index.

Table 4 below presents the following summary statistics estimated for the Russell 2000 index:

  • The mean
  • The standard deviation (the squared root of the variance)
  • The skewness
  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 4. Summary statistics for the Russell 2000 index.
Summary statistics for the Russell 2000 index
Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Russell 2000 index returns

Historical distribution

Figure 3 represents the historical distribution of the Russell 2000 index daily returns for the period from September 10, 1987 to December 30, 2022.

Figure 3. Historical distribution of the Russell 2000 index returns.
Historical distribution of the daily Russell 2000 index returns
Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from September 10, 1987 to December 30, 2022. The mean of daily returns is equal to 0.02% and the standard deviation of daily returns is equal to 1.20% (or equivalently 5.88% for the annual mean and 19.38% for the annual standard deviation as shown in Table 3 above).

Figure 4 below represents the Gaussian distribution of the Russell 2000 index daily returns with parameters estimated over the period from September 10, 1987 to December 30, 2022.

Figure 4. Gaussian distribution of the Russell 2000 index returns.
Gaussian distribution of the daily Russell 2000 index returns
Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Russell 2000 index returns

The R program that you can download above also allows you to compute risk measures about the returns of the Russell 2000 index.

Table 5 below presents the following risk measures estimated for the Russell 2000 index:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)
  • The short-term volatility (the standard deviation estimated over the last three months)
  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)
  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)
  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)
  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the Russell 2000 index.
Risk measures for the Russell 2000 index
Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the Russell 2000index while the study of the right tail is relevant for an investor holding a short position in the Russell 2000 index.

Why should I be interested in this post?

For a number of reasons, management students (as future managers and individual investors) should learn about the Russell 2000 index. The performance of 2000 small-cap American companies is tracked by this stock market index, which is first and foremost well-known and respected. Gaining a deeper understanding of the US small-cap stock market and the businesses that fuel its expansion requires knowledge of the Russell 2000 index. Individual investors can assess the performance of their own investments and those of their organization by comprehending the Russell 2000 index and its components. Last but not least, a lot of businesses base their mutual funds and exchange-traded funds (ETFs) on the Russell 2000 index which can considered as interesting assets to diversify a portfolio.

Related posts on the SimTrade blog

About financial indexes

   ▶ Nithisha CHALLA Financial indexes

   ▶ Nithisha CHALLA Calculation of financial indexes

   ▶ Nithisha CHALLA The business of financial indexes

   ▶ Nithisha CHALLA Float

About other US financial indexes

   ▶ Nithisha CHALLA The DJIA index

   ▶ Nithisha CHALLA The S&P 500 index

   ▶ Nithisha CHALLA The NASDAQ index

   ▶ Nithisha CHALLA The Wilshire 5000 index

About portfolio management

   ▶ Youssef LOURAOUI Portfolio

   ▶ Jayati WALIA Returns

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

Useful resources

Wikipedia Russell indexes

Finance Strategists Defining Russell 2000 Index

FTSE Russell The Russell 2000 Index: Small cap index of choice

Motley Fool 10 of the largest Russell 2000 companies

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Data for the Russell 2000 index

About the author

The article was written in April 2023 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

My internship experience as a junior consultant at ZEBOX

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My internship experience junior consultant at ZEBOX

Pranay KUMAR

In this article, Pranay KUMAR (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023) shares his professional experience as junior consultant at ZEBOX.

About the company

ZEBOX is an innovation and start-up accelerator program launched by CMA CGM, one of the world’s leading shipping and logistics companies. ZEBOX’s mission is to support start-ups and entrepreneurs in developing new technologies and business models to improve the global supply chain.

Logo of ZEBOX.
Logo of ZEBOX
Source: the company.

As a department of CMA CGM, ZEBOX has access to vast resources and expertise in the shipping and logistics industry, which allows it to provide valuable guidance and support to start-ups in this sector. The program has a global reach and is headquartered in Marseille, France.

My internship

During my internship at ZEBOX, I worked a Junior Consultant

My missions

As a Junior Consultant at ZEBOX, my primary mission was to analyze economic and demographic data from over 10 Asia-Pacific countries to guide ZEBOX’s market expansion efforts. Specifically, I was tasked with developing a comprehensive 3-year plan for ZEBOX’s expansion in the APAC region, covering strategic planning, go-to-market approaches, and market positioning using tools such as Porter’s five forces.

Required skills and knowledge

To succeed in my internship, I needed to have a strong understanding of economics, finance, and strategic management. Additionally, I needed to have excellent analytical and communication skills, as I was responsible for gathering and analyzing data on market trends, the competitive landscape, and consumer behavior in various countries, and presenting my findings and recommendations to both the ZEBOX team and the ESSEC SMIB professor.

What I learned

During my time at ZEBOX, I learned a great deal about how to conduct market research and analysis, as well as how to develop a comprehensive strategic plan. I also gained a deeper understanding of the shipping and logistics industry and the challenges faced by start-ups looking to innovate within this sector. Finally, I developed valuable skills in project management, data analysis, and communication that will serve me well in my future career.

Financial concepts related my internship

Market Research and Analysis

Understanding market trends, competitive landscape, and consumer behavior is essential to making informed business decisions. This involves conducting thorough research, gathering relevant data, and analyzing it to gain insights into the market.

Strategic planning

A comprehensive strategic plan is critical to achieving long-term success and achieving organizational goals.

Porter’s Five Forces

This model helps analyze the competitive forces within an industry and determine the attractiveness of entering a new market.

Why should I be interested in this post?

ESSEC students interested in finding a job in finance may find this post useful as it highlights the importance of having a strong foundation in both hard and soft skills. It also demonstrates the practical application of financial concepts such as market research and analysis, strategic planning, and Porter’s five forces in a real-world business context.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Federico DE ROSSI My Internship Experience at AlixPartners in London

Useful resources

Here are some useful resources related to my professional experience:

ZEBOX website: This website provides information about the accelerator program and its activities.

CMA CGM website: This website provides information about the shipping and logistics company that launched ZEBOX.

About the author

The article was written in April 2023 by Pranay KUMAR (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023).

The Consumer Confidence Index

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The Consumer Confidence Index

Jianen HUANG

In this article, Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023) explains about the consumer confidence index.

What is CCI

The Consumer Confidence Index, or CCI, is a widely used economic indicator that measures the level of optimism or pessimism that consumers feel about the economy. It is a metric that is usually used by governments, businesses, and investors to gauge consumer sentiment and predict future economic activity. The CCI is an important tool for economists and policymakers because consumer spending accounts for a significant portion of economic activity in most countries. When consumers feel more confident about the economy, they are more likely to spend money, which results in boosting economic growth. Conversely, when consumers are feeling uncertain or pessimistic about the future, they are more likely to save their money, which can lead to a slowdown in economic activity.

The index is based on a survey of consumers, which includes questions about their current financial situation, their expectations for the future, and their spending intentions. And the Index is calculated by averaging the responses of a survey of consumers. Based on these responses, a composite index is created that reflects the level of consumer confidence. A high index reading suggests that consumers are optimistic about the economy, while a low index reading suggests that consumers are pessimistic.

The figure below shows the US Consumer Confidence Index on a yearly basis. In the figure, there is a significant decrease in CCI in 2020, and that is strongly due to the impact of the COVID-19 pandemic, and at the beginning of 2022, there is another decrease that is because of the Ukraine-Russian war. The Consumer Confidence Index is based on the confidence level of consumers in the economy, and disruptions like these can significantly influence the confidence of consumers, which will lead to a fall in the financial market.

Consumer Confidence Index in the US.
Consumer Confidence Index in the US
Source: The Conference Board.

Regional Differences

There are several different versions of the Consumer Confidence Index used around the world, and each of them has its own methodology and survey questions.

In the United States, the index is produced by the Conference Board, a nonprofit research organization. The survey used to calculate the index asks consumers about their feelings on business conditions, employment, and income. The index is then calculated based on the percentage of consumers who feel positive about these factors.

In China, the CCI is released monthly by the National Bureau of Statistics. It is based on a survey of urban households, and the index is calculated based on four components: consumers’ assessments of current economic conditions, their expectations for future economic conditions, their confidence in the job market, and their willingness to spend money.

In the European Union, the Consumer Confidence Index is calculated by the European Commission. The survey used to calculate the index asks consumers about their expectations for the economy, their personal finances, and their intentions to make major purchases. The index is then calculated based on the percentage of consumers who feel positive about these factors.

Limitations of CCI

Despite its importance, the Consumer Confidence Index has some limitations that we need to take into account. First, the index is based on a survey of consumers, which means that it may not accurately reflect the true state of the economy. Consumers may be overly optimistic or pessimistic based on factors that are not related to the economy, such as current events or personal experiences. Additionally, the index only measures consumer sentiment, which may not always translate into actual economic activity. Consumers may feel optimistic about the economy, and still choose to save their money instead of spending it.

Another limitation of the Consumer Confidence Index is that it may not be a good indicator of the economic outlook for all segments of the population. The index is based on a survey of consumers as a whole, which means that it may not accurately reflect the experiences of specific demographic groups. For example, consumers who are experiencing financial difficulties may have a more pessimistic outlook on the economy than consumers who are financially secure.

Conclusion

In conclusion, the Consumer Confidence Index is an important economic indicator that measures the level of optimism or pessimism that consumers feel about the economy. While the index has some limitations, it remains a useful tool for predicting future economic activity and understanding the sentiments of consumers. By keeping an eye on the Consumer Confidence Index, stakeholders can gain a better understanding of the economic climate and make informed decisions about the future.

Related posts on the SimTrade blog

   ▶ Bijal GANDHI Economic Indicators

   ▶ Bijal GANDHI Consumer Confidence Index

Useful resources

National Bureau of Statistics China Consumer Confidence Index

The Conference Board US Consumer Confidence Index

European Union EU Consumer Confidence Index

About the author

The article was written in April 2023 by Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023).

My Internship Experience at Kearney

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My Internship Experience at Kearney

Jianen HUANG

In this article, Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023) shares his professional experience as a consulting intern at Kearney.

Kearney

Kearney is a global management consulting firm that specializes in helping clients achieve their strategic goals and solve complex business challenges. With over 95 years of experience, Kearney has built a reputation for delivering innovative solutions that drive lasting results. The firm operates in over 40 countries, serving clients in a range of industries, including consumer goods, healthcare, retail, technology, and transportation. Kearney’s team of experienced consultants bring deep industry knowledge, analytical rigor, and a collaborative approach to every engagement, working closely with clients to understand their unique needs and deliver tailored solutions. With a focus on delivering measurable impact and driving growth, Kearney has earned a trusted reputation as a strategic partner for businesses around the world.

Logo of the Kearney.
Logo of Kearney
Source: Kearney.

My internship

I worked as a part-time assistant and supported the Kearney consulting team based in Shanghai. During the six months internship, I worked on two main projects with clients from two different industries.

The Hainan Free Trade Port is a new special economic zone in China, established in 2020, with a focus on developing a globally competitive, free trade port, and a hub for international trade and investment. The Hainan Free Trade Port aims to promote trade liberalization and facilitation, open up the Chinese economy to international investors, and attract foreign investment. The Chinese government has announced a series of policies and measures to support the development of the Hainan Free Trade Port, including tax incentives, streamlined customs procedures, and relaxed visa policies, making it an attractive destination for international businesses looking to expand in the Asia-Pacific region. With this context, the first client is a state-owned company that was planning to enter the duty-free market. And we have been asked to plan the exhibition and the future expansion.

Quality management is important for businesses to ensure that their products or services consistently meet or exceed customer expectations. By implementing a quality management system, businesses can improve their processes, reduce waste, and increase efficiency, ultimately leading to higher customer satisfaction and increased profitability. Quality management involves establishing processes and procedures to ensure that products or services meet specific standards and requirements, reducing the likelihood of defects or errors that could negatively impact customer satisfaction. By focusing on quality management, businesses can also reduce costs by eliminating waste and inefficiencies in their processes, while building trust and a positive reputation for quality and reliability with their customers. The second project is related to a Chinese intelligence manufacturing player. With the trend of digitalization, the client is now planning to digitalize their quality management system, which includes the digitalization of all stages of the production process. Kearney’s team had been asked to build a QMS for the client and help them enhance their quality control ability.

Financial concepts related my internship

Cost-Benefit Analysis

Cost-benefit analysis is often used in consulting projects to make sound suggestions and convince management. Cost-benefit analysis is a way to evaluate the potential cost and benefit of a potential project. The process involves identifying and quantifying all relevant costs and benefits associated with the project, calculating the net present value of those costs and benefits, and comparing them to determine whether the project is financially viable.

The cost-benefit analysis process includes:

  • Identify the project scope: during this stage, the consultants need to not only determine the topic of the analysis, but also identify key stakeholders, key resources, and technics.
  • Determine the cost: the cost of a project can include direct and indirect costs, opportunity costs, and potential risks.
  • Determine the benefit: a project can bring revenue from the sales, intangible benefits, or advantages we can potentially gain.
  • Calculate the result

DCF

The discounted cash flow method (DCF) is an important financial valuation method that is often used in consulting jobs, and it is one of the most commonly used cost-benefit analysis. It is used to estimate the intrinsic value of an investment based on its series of cash flows. It involves projecting future cash flows, determining the appropriate discount rate, and calculating the net present value (NPV) of those cash flows.

The mathematical formula for the NPV:

NPV formula

CFt = cash flows of each period (from t=0 to t=T)
T = terminal date and number of periods
r = discount rate or interest rate required of the investment (it is the rate of return that the investors expect on their investment).

In a classical project, the initial cash flow, CF0, is usually negative since it is usually the initial investment of the project. The following cash flows, CFt for t=1 to t=T, are usually the profit that generates by the project for each period. The NPV can be rewritten as

NPV formula

In the end, we are comparing the NPV with the initial target we set to evaluate whether we should launch this project. On the other hand, in the case that we have enough resources, we can consider launching all the projects that have NPV greater than 0.

In the consulting project, the consultants usually have been asked to evaluate the value and to show a figure of the benefit of the project in order to convince the management.

Customer Due Diligence (CDD)

In consulting, CDD, or Customer Due Diligence, is a critical component of advisory services provided to clients in industries such as finance, banking, and insurance. Consultants use CDD to assess the risks associated with clients’ customers and to ensure regulatory compliance. CDD helps consultants identify potential financial crimes such as money laundering, terrorist financing, or other fraudulent activities that could pose a risk to their clients. By conducting thorough and systematic customer due diligence, consultants can help their clients mitigate risk, comply with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, and make informed business decisions. CDD is an essential tool for consultants providing advisory services to clients in highly regulated industries, helping them to build trust, maintain compliance, and protect their reputation.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Federico DE ROSSI My Internship Experience at AlixPartners in London

Useful resources

Kearney

About the author

The article was written in April 2023 by Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023).

It's not whether you're right or wrong

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It’s not whether you’re right or wrong

Jianen HUANG

In this article, Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023) comments on a quote by George Soros.

Quote

“It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.” – George Soros

Analysis of the quote

With the development of the business world, the financial market nowadays becomes more and more unpredictable because of the fast evolving of innovation, more different business models, and shorter horizons of business plans. And the financial market is not only about stocks (or any asset), but also the collective behavior of the crowds, markets, and organizations. In this case, the decision can be right or wrong in every trade. As an investor, if we are not able to ensure the correctness of our decision, then we need to focus on what we can control, which is maximizing the gain from the correct decision and minimizing the loss from the wrong decision. Thus, a great investment strategy and risk management strategy are vital for investors to be in the financial market.

My opinion about this quote

This quote taught us that instead of focusing on personal pride, ego, and hesitation, what matters are the outcome and the rewards. We should enhance our knowledge, be result-oriented, and be prepared to fight any risks it might occur.

Practical Implementation

Suppose you are an investor in the stock market and you hold shares of a company that you believe will perform well in the near future. You bought the shares at $9 each and you have a target profit of 44%. However, you also want to minimize your potential loss in case the stock performs poorly.

To take profit, you could set a sell limit order at $13 per share, which means that if the stock price reaches that level, your shares will automatically be sold at that price, locking in your 44% profit.

To limit loss, you could set a sell stop-loss order at $8 per share, which means that if the stock price drops to that level, your shares will automatically be sold at that price, limiting your loss to 10%.

In this example, you are using two different types of orders to both maximize your potential profit and minimize your potential loss. By using a sell limit order, you are ensuring that you sell your shares at a profit, while the stop-loss order helps to protect your investment by limiting your potential loss.

Related posts on the SimTrade blog

   ▶ All posts about Quotes

   ▶ Akshit GUPTA Portrait of George Soros: a famous investor

Useful resources

George Soros

About the author

The article was written in April 2023 by Jianen HUANG (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2021-2023).

Good-til-Cancelled (GTC) order and Immediate-or-Cancel (IOC) order

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Good-til-Cancelled (GTC) order and Immediate-or-Cancel (IOC) order

Lokendra RATHORE

In this article, Lokendra RATHORE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023) explains the Good-til-Cancelled (GTC) order and the Immediate-or-Cancel (IOC) used to trade in financial markets.

In addition to the types of orders that we discussed in Period1 of the SimTrade certificate (market orders, limit orders, best limit orders, stop loss orders and stop limit orders), I would like to elaborate on the following two other types or order that I have used in the past and found useful: Good-til-Cancelled (GTC) Order and Immediate-or-Cancel (IOC) Order.

What is Good-til-Cancelled (GTC) Order?

A Good-till-Cancelled (GTC) order is an order that remains in effect until it is either executed or cancelled by the investor. This type of order allows the investor to place a standing order that remains active until the investor cancels it or it is filled. For example, if an investor wants to purchase a stock when it reaches a certain price, they can place a GTC order, and the order will remain active until either the price is reached or the investor cancels it.

Significance

Flexibility: GTC orders provide investors with a high level of flexibility, as they remain active for an indefinite period of time. This allows investors to take advantage of market opportunities without having to send order every day.

Long-term Investment Strategy: GTC orders are particularly useful for investors who have a long-term investment strategy and are looking to accumulate shares over a period of time. The investor can place a GTC order at a specific price, and the order will remain active until the desired price is reached.

What is Immediate-or-Cancel (IOC) Order?

An Immediate-or-Cancel (IOC) order is a type of order that must be executed immediately, and any portion of the order that cannot be filled is cancelled. This type of order is used when an investor wants to ensure that an order is executed as quickly as possible, even if only part of the order can be filled. For example, if an investor wants to purchase a large number of shares of a stock, they may place an IOC order. If only a portion of the shares can be purchased immediately, the remainder of the order will be cancelled.

Significance

Time-sensitive: IOC orders are suitable for investors who need to execute a trade quickly, such as when they need to close a position or take advantage of a sudden market opportunity.

Partial Fills: The IOC order allows for partial fills, meaning that if only a portion of the order can be executed immediately, the remainder of the order is cancelled. This can be useful when an investor wants to limit their exposure to a particular stock.

What is the difference between Good-til-Cancelled (GTC) Order and Day order

Table 1. Comparison of GTC and IOC orders.
Comparison of GTC and IOC orders.
Source: production by the author.

In conclusion, both GTC and IOC orders are useful tools for investors who want to manage their trades and execute their investment strategies effectively. The choice of which type of order to use will depend on the specific needs and investment objectives of the investor.

Related posts on the SimTrade blog

▶ All posts about Orders

▶ Clara PINTO High-frequency trading and limit orders

▶ Federico DE ROSSI Understanding the Order Book: How It Impacts Trading

Useful resources

SimTrade course Trade orders

U.S. Securities and Exchange Commission (SEC) investor.gov

Investor.gov (SEC) Good-til-cancelled order

Investor.gov (SEC) Understanding Order Types

About the author

The article was written in April 2023 by Lokendra RATHORE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023).

Insuring Success in France: My Journey with InsurdHR

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Insuring Success in France: My Journey with InsurdHR

Lokendra RATHORE

In this article, Lokendra RATHORE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023) shares his working experience at InsurdHR.

InsurdHR – Company Overview

InsurdHR is a Singapore-based insurance broker platform providing Software as a Service (SaaS) that offers insurance solutions to startups and Small and Medium Enterprises (SMEs). The company is looking to expand its offerings to the French market to help its clients access insurance services more easily.

Logo of InsurdHR
Logo of InsurdHR
Source: InsurdHR.

My internship

I had the opportunity to work with InsurdHR which had partnered with SemioConsult (a privately owned consulting firm) for this expansion mission. As a student at ESSEC Business School on the Cergy campus (France), this project provided me with the unique opportunity to apply my academic knowledge to a real-world problem (market entry).

As a Strategy Consultant, I was responsible for conducting market research and analysis to help InsurdHR enter the French insurance brokerage market. During my time at InsurdHR, I had the opportunity to work on a number of exciting projects that allowed me to further develop my skills and knowledge.

My missions

One of my main missions was to conduct market research with due diligence for competitive analysis, market sizing, risk assessment, and identification of key partners. I used various sources, including Statista, Marketline, and Factiva, to gather data and insights on the French insurance market. Through my research, I was able to gain a comprehensive understanding of the industry and the key players within it.

Another key aspect of my internship was the analysis of other several survey reports on customer attitudes towards insurance in France. This allowed me to effectively segment, target, and position InsurdHR’s offering in the market. My findings helped the company to develop a more targeted and effective marketing strategy, which ultimately will lead to increased customer acquisition.

Working closely with the CEO of InsurdHR, I also had the opportunity to devise a preliminary market penetration strategy for the soft launch of the company’s services in France. This involved creating a roadmap for customer acquisition, with the goal of reaching the target population in the French market. Through this project, I was able to apply my knowledge of market research and analysis to develop a practical and effective strategy for the company.

Throughout my internship, I had the opportunity to work with a variety of people from different backgrounds and gain exposure to the fast-paced and dynamic world of insurance as a service. I learned how to conduct market research, analyze data, and collaborate effectively with others to achieve common goals.

Overall, my internship experience at InsurdHR was a truly rewarding and educational experience. I am grateful for the opportunities I had to learn and grow, and I am confident that the skills and knowledge I gained will be valuable to me in my future endeavors.

The skills required for this internship included strong research and analysis skills, effective communication and collaboration, and an understanding of the French insurance industry. Through this internship, I gained hands-on experience in these areas and was able to make a meaningful contribution to InsurdHR’s expansion efforts in France.

Key Concepts that I learned

I present below a few concepts related to my work: market sizing, risk assessment, and customer acquisition.

Market Sizing

Market Sizing is about determining the size of the target market which is an important first step in creating a successful business strategy. This involves analyzing data on market trends and customer behavior to determine the potential size of the market and the company’s ability to capture a portion of it.

Risk Assessment

In the insurance industry, risk assessment is a critical component of determining the cost and feasibility of offering a new product or service. This involves evaluating the potential risks and uncertainties associated with the market and making informed decisions based on this information.

Customer Acquisition

Customer acquisition is the process of acquiring new customers and converting them into paying customers. This involves developing and executing a strategy to reach, attract, and engage potential customers, as well as measuring the effectiveness of the acquisition efforts over time.

Why should I be interested in this post?

If you are interested in gaining insights into the practical application of academic knowledge in real-world business scenarios, particularly in the insurance industry, this post is definitely worth reading. The author shares his firsthand experience of working as a strategy consultant with InsurdHR, a company that was expanding into the French insurance brokerage market. The post covers various aspects of the author’s internship, including conducting market research, competitive analysis, risk assessment, and customer acquisition strategies.

Additionally, the author provides valuable insights into key concepts such as market sizing, risk assessment, and customer acquisition, which are relevant not only to the insurance industry but to any business looking to enter a new market or expand their customer base. Overall, this post is informative and provides a practical perspective on applying academic knowledge to real-world business problems.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

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   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

Useful resources

InsurdHR

SemioConsult

About the author

The article was written in April 2023 by Lokendra RATHORE (ESSEC Business School, Master in Strategy & Management of International Business (SMIB), 2022-2023).

The NASDAQ index

by

The NASDAQ index

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023) presents the NASDAQ index and details its characteristics.

The NASDAQ index

NASDAQ was first founded in 1971 and it is an American stock exchange. By market capitalization of shares traded it is the second-largest stock exchange in the world after the New York Stock Exchange (NYSE). As many of the technology and growth companies are listed on the exchange it is a popular benchmark for them. It has around 3000 companies listed on it, including some of the world’s top technology companies like Microsoft, Amazon, Facebook and Google.

The NASDAQ index is a market capitalization-weighted index that tracks the performance of the stocks listed on the NASDAQ exchange. It is widely used by investors and financial analysts to gauge the performance of the technology sector and the broader US economy.

Interestingly, there is a sister index, the Nasdaq Financial 100 that consists only of financial stocks. Both indices debuted together in 1985. The Nasdaq Financial 100 index was given more attention in the early years. However, the Nasdaq-100 has gained popularity over time due to the expansion of tech companies.

How is the NASDAQ index represented in trading platforms and financial websites? The ticker symbol used in the financial industry for the NASDAQ index is “NDAQ”.

Table 1 gives the Top 10 stocks in the NASDAQ index in terms of market capitalization as of August 26, 2022.

Table 1. Top 10 stocks in the NASDAQ index.
Top 10 stocks in the NASDAQ index
Source: computation by the author (data: NASDAQ! financial website).

Table 2 gives the sector representation of the NASDAQ index in terms of number of stocks and market capitalization as of January 31, 2023.

Table 2. Sector representation in the NASDAQ index.
Sector representation in the NASDAQ index
Source: computation by the author (data: ETmoney!).

Calculation of the NASDAQ index value

The NASDAQ index is a value-weighted index (also called a market-capitalization- weighted index). This means the larger companies have a greater impact on the index than the smaller companies.

At the end of each trading day the value of the NASDAQ index is determined in real-time and can be used as a benchmark for the performance of the index’s constituent companies’ current market prices.

The formula for a market-capitalization-weighted index is given by

Market Capitalization Index value

Where I is the index value, k a given asset, K the number of assets in the index, Pk the market price of asset k, Nk the number of issued shares for asset k, and t the time of calculation of the index.

In a market capitalization-weighted index, the weight of asset k is given by formula can be rewritten as

Market Capitalization Weighted Index Weight

which clearly shows that the weight of each asset in the index is its market capitalization of the asset divided by the sum of the market capitalizations of all assets.

Note that the divisor, whose calculation is based on the number of shares, is typically adjusted for events such as stock splits and dividends. The divisor is used to ensure that the value of the index remains consistent over time despite changes in the number of outstanding shares.

Use of the NASDAQ index in asset management

Given that the index is used for performance measuring it is widely used for constructing and analyzing investment portfolios. This index’s primary use is to create investment strategies, mitigate risk, and assess portfolio performance. Investors and asset managers utilize this index as a useful index to measure the overall performance of the market. It is mainly used for benchmarking, passive investing, active management and risk management.

Benchmark for equity funds

There are several indices that are used as a benchmark for equity funds, but the NASDAQ index is notable for its emphasis on businesses that invest in the technology sector, growth stocks, or both. It is primarily used to compare their performance to the overall market or a particular industry. Additionally, it gives investors a way to contrast the performance of various equity funds with various investment strategies or objectives.

While there are many advantages to using indexes as benchmarks, there are also some disadvantages and restrictions. For instance, benchmarks may not always be indicative of the precise investment goals or risk profile of a fund. Furthermore, benchmarks may be distorted by elements like the size or makeup of the companies included in the index.

Financial products around the NASDAQ index

Investors of all levels can invest in the Nasdaq-100 in a variety of ways, including through ETFs, mutual funds, options, futures, and annuities. ETFs that track the Nasdaq-100 are the easiest way to invest in the index. The ETF gives you exposure to all the 100 largest non-financial companies through a single investment. One of the most well-known ETFs that tracks the Nasdaq-100 index is the Invesco QQQ ETF and the First Trust NASDAQ-100 Technology Sector ETF (QTEC). The Nasdaq-100 is regarded as the best way to invest in some of the top non-financial companies listed on the Nasdaq because of its track record of strong index performance.

The Nasdaq-100 includes foreign stocks as well, unlike the S&P 500. Again, unlike the S&P 500, the Nasdaq-100 only permits non-financial companies to list on it. As of April 2023, a few of the international stocks that are a part of the Nasdaq-100 are Baidu from China, Ryanair from Ireland, Garmin from Cayman Island, and Infosys from India.

Index funds that attempt to track the Nasdaq Composite include Fidelity Investments’ FNCMX mutual fund and ONEQ exchange-traded fund. For investors looking for broad exposure to the stock market with relatively low fees, index funds are a popular option.

Historical data for the NASDAQ index

How to get the data?

The NASDAQ index is the most common index used in finance, and historical data for the NASDAQ index can be easily downloaded from the internet.

For example, you can download data for the NASDAQ index from January 5, 1972 on Yahoo! Finance (the Yahoo! code for NASDAQ index is ^IXIC).

Yahoo! Finance
Source: Yahoo! Finance.

You can also download the same data from a Bloomberg terminal.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Nasdaq index.

Download R file

Data file

The R program that you can download above allows you to download the data for the Nasdaq index from the Yahoo! Finance website. The database starts on January 2, 1992. It also computes the returns (logarithmic returns) from closing prices.

Table 3 below represents the top of the data file for the Nasdaq index downloaded from the Yahoo! Finance website with the R program.

Table 3. Top of the data file for the Nasdaq index.
Top of the file for the Nasdaq index data
Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Nasdaq index

The R program that you can download above also allows you to compute summary statistics about the returns of the Nasdaq index.

Table 4 below presents the following summary statistics estimated for the Nasdaq index:

  • The mean
  • The standard deviation (the squared root of the variance)
  • The skewness
  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 4. Summary statistics for the Nasdaq index.
Summary statistics for the Nasdaq index
Source: computation by the author (data: Yahoo! Finance website).

Evolution of the Nasdaq index

Figure 1 below gives the evolution of the Nasdaq index from January 2, 1992 to December 30, 2022 on a daily basis.

Figure 1. Evolution of the Nasdaq index.
Evolution of the Nasdaq index
Source: computation by the author (data: Yahoo! Finance website).

Figure 2 below gives the evolution of the Nasdaq index returns from January 2, 1992 to December 30, 2022 on a daily basis.

Figure 2. Evolution of the Nasdaq index returns.
Evolution of the Nasdaq index return
Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Nasdaq index returns

Historical distribution

Figure 3 represents the historical distribution of the Nasdaq index daily returns for the period from January 2, 1992 to December 30, 2022.

Figure 3. Historical distribution of the Nasdaq index returns.
Historical distribution of the daily Nasdaq index returns
Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from January 2, 1992 to December 30, 2022. The mean of daily returns is equal to 0.02% and the standard deviation of daily returns is equal to 1.20% (or equivalently 5.88% for the annual mean and 19.38% for the annual standard deviation as shown in Table 3 above).

Figure 4 below represents the Gaussian distribution of the Nasdaq index daily returns with parameters estimated over the period from January 2, 1992 to December 30, 2022.

Figure 4. Gaussian distribution of the Nasdaq index returns.
Gaussian distribution of the daily Nasdaq index returns
Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Nasdaq index returns

The R program that you can download above also allows you to compute risk measures based the returns of the Nasdaq index.

Table 5 below presents the following risk measures estimated for the Nasdaq index:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)
  • The short-term volatility (the standard deviation estimated over the last three months)
  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)
  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)
  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)
  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the Nasdaq index.
Risk measures for the Nasdaq index
Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the Nasdaq index while the study of the right tail is relevant for an investor holding a short position in the Nasdaq index.

Why should I be interested in this post?

For a number of reasons, ESSEC students should learn about the Nasdaq index. The performance of tech-oriented companies is tracked by this stock market index, which is first and foremost well-known and respected. Gaining a deeper understanding of the US stock market and the businesses that fuel its expansion requires knowledge of the Nasdaq index. Management students can assess the performance of their own investments and those of their organization by comprehending the Nasdaq index and its components. Last but not least, a lot of businesses base their mutual funds and exchange-traded funds (ETFs) on the Nasdaq index.

Related posts on the SimTrade blog

About financial indexes

   ▶ Nithisha CHALLA Financial indexes

   ▶ Nithisha CHALLA Calculation of financial indexes

   ▶ Nithisha CHALLA The business of financial indexes

   ▶ Nithisha CHALLA Float

About other US financial indexes

   ▶ Nithisha CHALLA The DJIA index

   ▶ Nithisha CHALLA The S&P 500 index

   ▶ Nithisha CHALLA The Russell 2000 index

   ▶ Nithisha CHALLA The Wilshire 5000 index

About portfolio management

   ▶ Jayati WALIA Returns

   ▶ Youssef LOURAOUI Portfolio

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data: Yahoo! Finance

Yahoo! Finance

Yahoo! Finance Data for the Nasdaq index

Data: Bloomberg

Bloomberg

Bloomberg Data for the Nasdaq index

About the author

The article was written in April 2023 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

The DJIA index

by

The DJIA index

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023) presents the Dow Jones Industrial Average (DJIA) index and details its characteristics.

The DJIA index

The Dow Jones Industrial Average (DJIA) index was created on May 26, 1896, by Charles Dow and Edward Jones, the co-founders of Dow Jones & Company. It is publicly known as the Dow Jones index or the Dow in general. The DJIA is currently owned and managed by The Wall Street Journal.

It is a stock market index in the United States which represents the performance of 30 large-capitalization publicly traded companies. Today, it is no longer limited to just industrial companies like how it was initially and includes stocks from a variety of sectors, such as technology, healthcare, and finance.

Who decides about the selection of stocks in the index? The Wall Street Journal, which owns the index, selects the stocks based on a variety of factors, such as the company’s size and reputation, and the representation of the industries.

The DJIA is a price-weighted index, which means that each stock’s weight in the index is determined by its price per share rather than its market capitalization such as the S&P 500 index (see below for the technical details). The DJIA is published and disseminated in real-time by various financial news outlets and can be accessed by investors and traders around the world.

How is the DJIA index represented in trading platforms and financial websites? The ticker symbol used in the financial industry for the DJIA index is “DJI”.

Table 1 gives the Top 10 stocks in the DJIA index in terms of market capitalization as of January 19, 2023.

Table 1. Top 10 stocks in the DJIA index.
Top 10 stocks in the DJIA index
Source: computation by the author (data: Motley Fool financial website).

Table 2 gives the sector representation of the DJIA index in terms of number of stocks and market capitalization as of January 31, 2023.

Table 2. Sector representation in the DJIA index.
Sector representation in the DJIA index
Source: computation by the author (data: Wikipedia).

Calculation of the DJIA index value

As a price-weighted index, the DJIA has a greater impact on the index value when the stock prices of companies are higher. The DJIA index value is determined solely based on stock prices, disregarding any dividends that the companies that make up the index have paid.

The formula for a price-weighted index is given by

Price Weighted Index value

where I is the index value, k a given asset, K the number of assets in the index, Pk the market price of asset k, and t the time of calculation of the index.

In a price-weighted index, the weight of asset k is given by the following formula

Price Weighted Index Weight

which clearly shows that the weight of each asset in the index is its market price divided by the sum of the market prices of all assets.

Note that the divisor, which is equal to the number of shares, is typically adjusted for events such as stock splits and dividends. The divisor is used to ensure that the value of the index remains consistent over time despite changes in the number of outstanding shares. A more general formula may then be:

Index value

Where D is the divisor which is adjusted over time to account for events such as stock splits and dividends.

Use the DJIA index in asset management

As we all know, investors frequently use the DJIA index as a benchmark. The DJIA index is used by asset managers to compare the returns on their investments to market returns. Given that it is an index that gauges market performance, it supports investors in carrying out key asset management tasks like passive investments, the capacity to assess corporate risk, asset allocation, portfolio management, etc. But we should always be aware that the DJIA does not encompass all markets and industries in the US. As a result, whenever we evaluate the performance of the US market, we should always take other indexes such as the S&P 500 index and the Russell 2000 into account.

Benchmark for equity funds

Now how do we decide if DJIA is a benchmark for equity funds in the US market? Precisely by seeing if the index indicates all the sectors and industries in the market. Since the DJIA is a price-weighted index and only takes the top 30 companies into account, it is not typically used as a benchmark for the entire US market. We should also take into account other diverse indexes, such as the S&P 500 or the Russell 2000, which offer a more complete representation of the market, if we need a benchmark for the entire US market.

Financial products around the DJIA index

There are a number of financial products centered around the DJIA index that can offer investors some insight, as we are aware that it measures the performance of sizable publicly traded companies listed on the New York Stock Exchange (NYSE) and the Nasdaq. I listed the main financial products associated with the DJIA index through which investors can access the index as below:

  • Exchange-Traded Funds, Options Contracts, Futures Contracts, Index funds and Mutual funds.
  • ETFs are the investment funds that are traded like stocks. The SPDR Dow Jones Industrial Average ETF (DIA) and the ProShares Ultra Dow30 ETF are two examples of ETFs that track the DJIA index (DDM)
  • Futures and Options Contracts allow investors to buy or sell the DJIA index at a specific price and date in the future. Primarily to combat market volatility, to generate income through trading strategies, or to make predictions about the index’s future course
  • Mutual funds and index funds tend to focus more on investing in firms that are included in the DJIA index or attempt to replicate the performance of the index by purchasing the same stocks that make up the index

Historical data for the DJIA index

How to get the data?

The DJIA index is the most common index used in finance, and historical data for the DJIA index can be easily downloaded from the internet.

For example, you can download data for the DJIA index from January 2, 1992 on Yahoo! Finance (the Yahoo! code for DJIA index is ^DJI).

Yahoo! Finance
Source: Yahoo! Finance.

You can also download the same data from a Bloomberg terminal.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the DJIA index.

Download R file

Data file

The R program that you can download above allows you to download the data for the DJIA index from the Yahoo! Finance website. The database starts on January 2, 1992. It also computes the returns (logarithmic returns) from closing prices.

Table 3 below represents the top of the data file for the DJIA index downloaded from the Yahoo! Finance website with the R program.

Table 3. Top of the data file for the DJIA index.
Top of the file for the DJIA index data
Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Dow Jones index

The R program that you can download above also allows you to compute summary statistics about the returns of the Dow Jones index.

Table 4 below presents the following summary statistics estimated for the Dow Jones index:

  • The mean
  • The standard deviation (the squared root of the variance)
  • The skewness
  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 4. Summary statistics for the Dow Jones index.
Summary statistics for the Dow Jones index
Source: computation by the author (data: Yahoo! Finance website).

Evolution of the Dow Jones index

Figure 1 below gives the evolution of the Dow Jones index from January 2, 1992 to December 30, 2022 on a daily basis.

Figure 1. Evolution of the Dow Jones index.
Evolution of the Dow Jones index
Source: computation by the author (data: Yahoo! Finance website).

Figure 2 below gives the evolution of the Dow Jones index returns from January 2, 1992 to December 30, 2022 on a daily basis.

Figure 2. Evolution of the Dow Jones index returns.
Evolution of the Dow Jones index return
Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Dow Jones index returns

Historical distribution

Figure 3 represents the historical distribution of the Dow Jones index daily returns for the period from January 2, 1992 to December 30, 2022.

Figure 3. Historical distribution of the Dow Jones index returns.
Historical distribution of the daily Dow Jones index returns
Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from January 2, 1992 to December 30, 2022. The mean of daily returns is equal to 0.02% and the standard deviation of daily returns is equal to 1.20% (or equivalently 5.88% for the annual mean and 19.38% for the annual standard deviation as shown in Table 3 above).

Figure 4 below represents the Gaussian distribution of the DJIA index daily returns with parameters estimated over the period from January 2, 1992 to December 30, 2022.

Figure 4. Gaussian distribution of the Dow Jones index returns.
Gaussian distribution of the daily Dow Jones index returns
Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Dow Jones index returns

The R program that you can download above also allows you to compute risk measures about the returns of the Dow Jones index.

Table 5 below presents the following risk measures estimated for the Dow Jones index:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)
  • The short-term volatility (the standard deviation estimated over the last three months)
  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)
  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)
  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)
  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)
  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the Dow Jones index.
Risk measures for the Dow Jones index
Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the S&P 500 index while the study of the right tail is relevant for an investor holding a short position in the S&P 500 index.

Why should I be interested in this post?

For a number of reasons, ESSEC students should learn about the Dow Jones index. The performance of 30 large-cap American companies is tracked by this stock market index, which is first and foremost well-known and respected. Gaining a deeper understanding of the US stock market and the businesses that fuel its expansion requires knowledge of the Dow Jones index. Management students can assess the performance of their own investments and those of their organization by comprehending the Dow Jones index and its components. Last but not least, a lot of businesses base their mutual funds and exchange-traded funds (ETFs) on the Dow Jones index.

Related posts on the SimTrade blog

About financial indexes

   ▶ Nithisha CHALLA Financial indexes

   ▶ Nithisha CHALLA Calculation of financial indexes

   ▶ Nithisha CHALLA The business of financial indexes

   ▶ Nithisha CHALLA Float

About other US financial indexes

   ▶ Nithisha CHALLA The S&P 500 index

   ▶ Nithisha CHALLA The NASDAQ index

   ▶ Nithisha CHALLA The Russell 2000 index

   ▶ Nithisha CHALLA The Wilshire 5000 index

About portfolio management

   ▶ Jayati WALIA Returns

   ▶ Youssef LOURAOUI Portfolio

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data: Yahoo! Finance

Yahoo! Finance

Yahoo! Finance Data for the DJIA index

Data: Bloomberg

Bloomberg

Bloomberg Data for the DJIA index

About the author

The article was written in April 2023 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

Float

by

Float

Nithisha CHALLA

In this article, Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023) explains float and its use in the construction financial indexes.

What is Float?

The term “float” (sometimes mentioned as “free float”) refers to the quantity of shares that are readily tradable in financial markets. The float is defined as

Float = Total outstanding shares – Closely held shares – Restricted shares

Outstanding shares are the total number of shares issued by the company.

Closely held shares are the shares of a company that are owned by a small number of shareholders and are not traded on a public stock exchange. These shareholders may include company founders, family members, or a small group of private investors.

Restricted shares are the shares that are not transferable until certain conditions are met and are typically held by corporate management, such as executives and directors. Restricted shares are a type of equity compensation that some employees receive.

The float is usually expressed as a percentage of the total number of shares issued by the company.

Float and IPO

When a company conducts an initial public offering (IPO) or a seasoned offering (SEO) to finance its operational activities and investments, it releases a certain number of shares onto the market that are available for purchase by anyone interested in acquiring a piece of the company. The number of shares issued by the company increases the float. Before the IPO, the float is equal to zero. After the IPO, the float increases but may be relatively small as the founder or top managers of the company may want or have to keep some of their shares.

Why is the float important?

The float is crucial for the calculation of market capitalization-weighted stock market indices. The weight of a company’s stock in the index and, consequently, its impact on the performance of the index as a whole, can change depending on whether shares are included in or excluded from the float. Because of this, a lot of indices base their values solely on the shares in the float, known as the float-adjusted market capitalization method.

Stock market liquidity increases as the float increases. As the number of shares that can be purchased and sold increases, it makes it simpler for an investor to enter and exit the market.

High-float stocks and low-float stocks

In the equity market, we often distinguish high-float stocks and low-float stocks according to the percentage of shares that are available for trading in the market. High-float stocks have more supply and more shares available for trading than low-float stocks.

High float stocks have greater liquidity and are less volatile. In a situation where there is extremely heavy demand, supply and demand will become imbalanced, which will lead to extreme price moves.

Example

The percentage of float shares in relation to all outstanding shares is known as the float percentage. Let us consider the case of Amazon. As of September 2021, Amazon had approximately 505 million shares outstanding. Of these shares, approximately 425 million were considered “float shares”. Float shares are the shares available for trading by the public and exclude shares held by insiders, institutional investors, and other long-term investors.

Therefore, Amazon’s float share percentage would be calculated as follows:
(425 million float shares / 505 million outstanding shares) x 100% = 84.16%

This indicates that the public had access to about 84.16% of Amazon’s outstanding shares for trading. Insiders, institutions, and other long-term investors held the remaining 15.84% of the stock.

Indexes using the float

Equity indices that track the performance of a particular group of companies, such as small-cap or mid-cap companies, are frequently created using float-based indexes. The market capitalization of each company, which is determined by multiplying the total number of outstanding shares by the current share market price, is considered in the calculation of these indices.

The Russell 2000 index, which tracks the performance of 2,000 small-cap companies in the US, and the MSCI World Small Cap index, which tracks the performance of small-cap companies in developed markets worldwide, are two of the many examples of indexes that make use of the float.

We present below the formula for a market-capitalization-weighted index and a float-adjusted market-capitalization-weighted index.

Market-capitalization-weighted index

A market capitalization-weighted index is calculated by multiplying the price of each asset in the index by its number of outstanding shares and summing the resulting values. The weighting of each asset in the index is determined by its market capitalization, so that the largest and most influential companies have the greatest impact on the overall performance of the index.

The formula for a market-capitalization-weighted index is given by

Market Capitalization Index value

Where I is the index value, k a given asset, K the number of assets in the index, Pk the market price of asset k, Nk the number of issued shares for asset k, and t the time of calculation of the index.

In a market capitalization-weighted index, the weight of asset k is given by formula can be rewritten as

Market Capitalization Weighted Index Weight

Which clearly shows that the weight of each asset in the index is its market capitalization of the asset divided by the sum of the market capitalizations of all assets.

Note that the divisor, whose calculation is based on the number of shares, is typically adjusted for events such as stock splits and dividends. The divisor is used to ensure that the value of the index remains consistent over time despite changes in the number of outstanding shares.

Float-adjusted market-capitalization-weighted index

In a float-adjusted market-capitalization-weighted index, the market-capitalization weight of each asset is adjusted for its market float. It is also called a free float. Instead of taking into account shares held by insiders, governments, or other entities that might not be available for trading, the weight is adjusted based on the percentage of shares that are actually traded on the open market.

This differs from the market capitalization weighted index as it accounts for the shares outstanding of a company. A float-adjusted market capitalization-weighted index only takes into account shares that are freely available for trading, whereas a market capitalization-weighted index takes into account all outstanding shares, providing a more accurate picture of the performance of the market.

The formula for a float-adjusted market-capitalization-weighted index is given by

Float Adjusted Market Capitalization Index value

Where I is the index value, k a given asset, K the number of assets in the index, Pk the market price of asset k, Nk the number of issued shares for asset k, Fk the float factor of asset k, and t the time of calculation of the index.

In a float-adjusted market-capitalization-weighted index, the weight of asset k is given by formula can be rewritten as

Float Adjusted Market Capitalization Weighted Index Weight

Why should I be interested in this post?

As a key idea in finance and investment, float should be covered by management students. Float has important effects on both managers and investors. Analyzing a company’s financial statements can also benefit from having a solid understanding of floats. When making a choice, a management student who is researching a company’s stock as a potential investment should keep this in mind.

Related posts on the SimTrade blog

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   ▶ Nithisha CHALLA Calculation of financial indexes

   ▶ Nithisha CHALLA The DJIA index

Useful resources

Bankrate What is a stock float
Business Insider Floating stock: Why it’s important for investors to know a company’s float

CFI What is Floating Stock?

The Economic Times Float and IPO

Russel How are indexes weighted?

About the author

The article was written in April 2023 by Nithisha CHALLA (ESSEC Business School, Grande Ecole Program – Master in Management, 2021-2023).

Money is a terrible master but an excellent servant

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“Money is a terrible master but an excellent servant”

Fatimata KANE

In this article, Fatimata KANE (ESSEC Business School, Master in Strategy & Management of International Business, 2022-2023) comments on a quote by Phineas Taylor Barnum about money management.

“Money is a terrible master but an excellent servant.”

Analysis of the quote

This quote by Phineas Taylor Barnum reflects the idea that while money can be a powerful tool to achieve our goals and desires, it can also become a source of stress and anxiety when we become too attached to it. The key is to use money as a servant to achieve our objectives, rather than allowing it to become our master and controlling our lives.

About the author

Phineas Taylor Barnum, also called P.T. Barnum, was an American showman and entrepreneur who lived in the 19th century. He is best known for founding the Barnum & Bailey Circus, which became known as “The Greatest Show on Earth.” Barnum was also a politician, author, and philanthropist, and he is famous for his promotional skills and his ability to attract audiences to his shows through various forms of advertising and publicity stunts. However, some of his displays, such as the exhibition of people with physical abnormalities or disabilities, have been criticized for being exploitative.

Financial concepts related to the quote

Financial Independence

The concept of financial independence is related to using money as a servant rather than a master. It involves achieving a level of financial stability and freedom where you have enough resources to support your desired lifestyle without being overly dependent on a job or other external factors.

Budgeting

Budgeting is a financial concept that involves creating a plan for how you will spend your money. When we use money as a servant, we create a budget that aligns with our values and goals, and we use our resources to support those priorities.

Opportunity Cost

Opportunity cost is the concept that every decision has a cost, and we must weigh the potential benefits against the potential drawbacks. When we use money as a servant, we make conscious decisions about how we spend our money, considering the opportunity cost of each option.

My opinion about this quote

I strongly agree with P.T. Barnum’s quote that “Money is a terrible master but an excellent servant”. While money is an important resource that can help us achieve our goals and live our desired lifestyle, it should never become our primary focus or source of stress. Instead, we should view money as a tool that can support our values and priorities, rather than allowing it to control our lives. By using money as a servant, we can achieve financial stability and independence, create a budget that aligns with our values, and make conscious decisions about how we use our resources to achieve our goals.

Why should I be interested in this post?

Financial literacy and money management philosophy are directly touched upon by this quote, which is why it could be of much interest to you, as a business school student.

Related posts on the SimTrade blog

▶ All posts about Quotes

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Useful resources

Learn more about P.T. Barnum (in French)

About the author

The article was written in April 2023 by Fatimata KANE (ESSEC Business School, Master in Strategy & Management of International Business, 2022-2023).

My internship experience as a marketing intern at Amazon

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My internship experience as a marketing intern at Amazon

Fatimata KANE

In this article, Fatimata KANE (ESSEC Business School, Master in Strategy & Management of International Business, 2022-2023) shares her professional experience as a marketing intern at Amazon.

About the company

Amazon is a multinational technology company that was founded in 1994 by Jeff Bezos. Originally started as an online bookstore, the company has since expanded to become the world’s largest online retailer, selling a vast array of products and services across various categories, including electronics, fashion, home goods, groceries, and digital content.

Logo of Amazon.
Logo of Amazon
Source: the company.

In addition to its e-commerce platform, Amazon has also expanded into other areas such as cloud computing (Amazon Web Services), digital streaming (Amazon Prime Video), smart home devices (Amazon Echo), and artificial intelligence (Amazon Alexa). The company is headquartered in Seattle, Washington, and operates in over 200 countries worldwide.

Amazon is known for its customer-centric approach and has a reputation for offering fast and convenient delivery options, competitive pricing, and a wide selection of products. The company’s mission statement is to “be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online.”

Amazon France

Amazon France is the French subsidiary of Amazon, which is the world’s largest online retailer. The company’s French website, Amazon.fr, was launched in 2000 and offers customers in France a wide selection of products across various categories, including electronics, books, fashion, home goods, and more.

As of 2021, Amazon France has over 22,000 employees and operates several distribution centers and warehouses throughout the country to ensure fast and reliable delivery to customers. The company also offers various delivery options, including same-day delivery and Amazon Prime, which provides free shipping and access to additional services such as streaming video and music.

I worked as a General Marketing Specialist Intern at Amazon France, in the retail business unit.

My internship

As a general marketing specialist intern at Amazon.fr, my role was to support the retail team in executing various marketing campaigns and initiatives to drive traffic, sales, and customer engagement on the website.

My missions

For example, I could assist in creating and publishing content on Amazon.fr’s social media accounts to promote products and engage with customers. This could include writing copy, designing graphics, and scheduling posts. I also created email campaigns to promote new products, sales, and other marketing initiatives. This could involve designing email templates, writing copy, and analyzing performance metrics.

I could also assist in managing Amazon.fr’s search engine marketing (SEM) campaigns to increase visibility and drive traffic to the website. This could involve keyword research, ad copy creation, and performance monitoring. Besides marketing content creation, I also oversaw auditing the marketing performances, and designed marketing plans for brands.

Required skills and knowledge

Working in this role required creativity, eagerness to learn, good communication skills, and high prioritization capacity.

What I learned

My internship experience with Amazon provided me with exceptional learning opportunities.

First, Amazon has a strong customer-centric approach, and this is reflected in all aspects of its marketing strategy. As an intern, I learned the importance of understanding customer needs and preferences and creating marketing campaigns that resonate with them.

Moreover, Amazon relies heavily on data analysis to inform its marketing decisions, and I had the opportunity to work with various analytics tools to measure the performance of marketing campaigns. This helped me develop a better understanding of the importance of data-driven decision-making.

Furthermore, in a large organization like Amazon, collaboration is essential. As an intern, I had the opportunity to work with different teams and departments to execute marketing campaigns. This taught me the importance of effective communication and teamwork.

Plus, Digital marketing is constantly evolving, and Amazon is at the forefront of innovation in the industry. As an intern, I had access to various training resources and had the opportunity to attend industry events and webinars to stay up-to-date with the latest trends and best practices.

Lastly, Amazon has a reputation for providing a seamless customer experience, and this requires a high level of attention to detail in all aspects of marketing. I thus learned the importance of quality assurance and attention to detail in all aspects of marketing campaigns, from copywriting to design.

Overall, my experience as a general marketing specialist intern at Amazon.fr was invaluable in helping me develop a better understanding of digital marketing and how it can be used to drive business growth and customer satisfaction.

Financial concepts related my internship

Although not focused on finance, my internship in marketing still allowed me to be in touch with several financial concepts such as:

Return on Investment (ROI)

As a marketing intern, I learned the importance of measuring the ROI of marketing campaigns. This involves calculating the revenue generated by a campaign compared to the cost of the campaign. This concept is related to financial analysis, where businesses must analyze the return on investment for any project or initiative.

Cost of Goods Sold (COGS)

COGS is a financial concept that represents the direct costs associated with producing and selling a product or service. As an intern, I learned how Amazon calculates the COGS for each product and how this impacts pricing and profitability.

Gross Margin

Gross margin is a financial concept that represents the difference between revenue and COGS. As an intern, I learned how Amazon manages its gross margin by optimizing pricing strategies, managing inventory levels, and reducing costs.

Why should I be interested in this post?

I greatly appreciated my experience at Amazon and would recommend the company to any curious and eager-to-learn individual who is interested in marketing and retail.

Related posts on the SimTrade blog

   ▶ All posts about professional experiences

   ▶ Bijal GANDHI Cost of goods sold

Useful resources

Amazon France

About the author

The article was written in April 2023 by Fatimata KANE (ESSEC Business School, Master in Strategy & Management of International Business, 2022-2023).