The Wilshire 5000 index

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.

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About financial indexes

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   ▶ Nithisha CHALLA Float

About other US financial indexes

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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).

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