CAC 40

CAC 40
Long name	Compagnie des Agents de Change 40 Index
Owner/publisher/sponsor	Association of French Stock Exchanges - Paris Stock Exchange (Société des Bourses Françaises (SBF) - Bourse de Paris)
Number of constituents)	40 French companies listed on the Paris Stock Exchange that are also traded on the options market.
Construction principle	Capitalization-weighted value ratio
Base date/base value	December 31, 1987 / 1,000.00
Interval of calculation	30 seconds
Source:	Association of French Stock Exchanges and Paris Stock Exchange, 1995.

Société des Bourses Françaises 120 Index SBF

SBF 120
Long name	Société des Bourses Françaises 120 Index
Owner/publisher/sponsor	Association of French Stock Exchanges - Paris Stock Exchange (Société des Bourses Françaises - Bourse de Paris)
Number of constituents)	120 French companies listed on the Paris Stock Exchange
Construction principle	Capitalization-weighted value ratio
Base date/base value	December 31, 1990/ 1,000.00
Interval of calculation	30 seconds
Source:	Association of French Stock Exchanges and Paris Stock Exchange, 1995.

The CAC 40 index, the main real­time indicator of the French stock market, is a subset of the new SBF 120 index. The SBF 120, in turn, is a subset of the SBF 250, which replaces the CAC 240 and the INSEE weekly index. To track the performance of mid-cap stocks, the MIDCAC was developed, whose index sample of 100 stocks does not fit in the hierarchical structure of the other three indexes.

A sample of 40 French stocks listed on the so-called Monthly Settlement Market (also known as the "RM" or the "Règlement Mensuel") constitutes the CAC 40 index sample (Association of French Stock Exchanges and Paris Stock Exchange, 1996). Component stocks are selected on the basis of criteria related to both each individual stock and the index as a whole. First, for a stock to be eligible for inclusion in the index its market capitalization must rank among the 100 largest market capitalizations in the Monthly Settlement Market. Second, the criterion of liquidity, which is split into two subcriteria, the breadth and the depth of the market in each stock, must be passed. The breadth of the market is determined by the float, the daily transaction volume, and the turnover rate, that is the ratio of turnover to market capitalization. Depth is measured by the average spread, that is the difference between the best bid and best ask prices in percentage terms), and by volatility, which is deemed to be evidence of a continuing flow of bids and asks (Association of French Stock Exchanges and Paris Stock Exchange, 1996).

With the CAC 40 as the mainstay of the index family, the SBF - Paris Stock Exchange have developed a series of indexes that are based on a core sample of index stocks to which additional stocks are added to derive indexes with specific features (Association of French Stock Exchanges and Paris Stock Exchange, 1995). The SBF 120 comprises the top 120 French stocks in terms of liquidity and market capitalization. It is designed to serve as a benchmark for index funds, whereas the SBF 250 is made up of 250 stocks that together shall reflect the branch structure of the French economy. The primary criterion for assigning each company to a business sector and thus the respective branch index was the structure of its consolidated sales. The classification scheme currently applied includes three sectors that encompass a total of twelve branches, which in turn are subdivided into 39 more narrowly defined business segments. The assignment of stocks to a certain branch is subject to an annual revision.

Both the SBF 120 and SBF 250 are also calculated as performance indexes in two different variants. The "net return indexes" measure the performance of a portfolio of French stocks under the assumption that net dividends are reinvested in all component stocks on the day a dividend is payable, whereas the "total return indexes" are constructed so as to include the net dividend plus the "avoir fiscal" tax credit. Leaving aside dividend payments, all indexes are adjusted in an equal manner if any of the following intervention-prompting transactions occur:

• removal of a stock from the Official List or the Second Market;
• additions; given the hierarchical structure of the CAC 40 and the SBF indexes, any stock that is added to the CAC 40 index sample is automatically included in the broader-based indexes;
• stock splits (stock consolidations) do not prompt an adjustment procedure; by their very nature value indexes automatically offset the increase (decrease) in the number of outstanding shares by a corresponding decrease (increase) in the share price;
• bonus issues;
• cash issues with pre-emptive subscription rights;
• distribution of assets in the form of cash or securities not subject to personal income tax;
• listings of additional shares;
• corporate mergers;
• assignment to a different branch which affects only the respective branch indexes and thus the SBF 250 which is composed thereof.

To compose the MIDCAC sample, in a first step all French companies listed on the Official List or the Second Market are ranked, and then the sample is left- and right-truncated to cut off the 20 stocks with the highest and the lowest market capitalization. The sample is further reduced by eliminating all stocks issued by financial and real estate companies as well as all stocks with a trading day ratio below 70%, that is trading occurs on less than about 175 of the total of about 250 trading days per year.

The remainder, which is still ranked by market capitalization, is subdivided into six sets with an equal number of elements each of which is assigned an equal weight in the composition of the index. By implication, the sets of stocks with large market capitalization are underweighted, whereas the sets of stocks with small market capitalization are overweighted. In a next step the stocks in each set are reranked according to their median daily transaction volume, the daily number of trades, and daily turnover drawing upon data from the 12 months prior to the revision of the index sample. The constituent stocks are then selected according to their rating calculated as the average of the three rankings.

Ever since the trading session of January 4, 1988, when the CAC 40 reached its historic low only one day after its official introduction at a closing value at 989.61 (January 4, 1988), the CAC 40 has exceeded its base value of 1,000 index points.

References:

Association of French Stock Exchanges and Paris Stock Exchange (1995): The SBF 120 and SBF 250 Indexes - Methodology and Supervision, Association of French Stock Exchanges and Paris Stock Exchange: Paris.

Association of French Stock Exchanges and Paris Stock Exchange (1996): The Paris Bourse Indices - Methodology and Supervision, Association of French Stock Exchanges and Paris Stock Exchange: Paris.

	CAC 40: Association of French Stock Exchanges and Paris Stock Exchange, 1996;
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