Value Line Composite Index – Definition

Cite this article as:"Value Line Composite Index – Definition," in The Business Professor, updated May 21, 2019, last accessed October 26, 2020, https://thebusinessprofessor.com/lesson/value-line-composite-index-definition/.

Back toINVESTMENTS TRADING & FINANCIAL MARKETS

Value Line Composite Index Definition

The Value Line Composite Index refers to a stock index which contains an estimate of 1,675 companies from American Stock Exchange, NYSE, Toronto, NASDAQ, and markets that are over the counter. There are two forms of Value Line Composite Index and they include the Value Line Geometric Composite Index and the Value Line Arithmetic Composite Index. While the Value Line Geometric Composite Index is the original equally weighted index, the Value Line Arithmetic Composite Index refers to an index that mirrors changes in a case where a portfolio held equal stock amounts. Typically, these indexes are published in the Value Line Investment Survey. Arnold Bernhard created it and he’s the founder and CEO of Value Line Inc.

A Little More on What is Value Line Composite Index

The “Value Line”, which the index gets its namesake from, is a multiple of cash flow which Bernhard superimposed over a price chart in order to stabilize the value of various companies. Value Line is one of the most revered investment research firms. It has been having an extremely strong performance record. In fact, the model portfolios of the firm have, in general, beat the market over time.

The Value Line Composite Index is made up of the exact same companies the Value Line Investment Survey, with the exclusion of closed-end funds.

The fluctuation of the number of companies in the Value Line Index is dependent on factors including the delisting or addition of the companies present on the exchanges, acquisitions, mergers, bankruptcies, and Value Line’s coverage decisions made for the Value Line Index. The decisions of Value Line as to the companies to add are undertaken with the aim of creating a broad representation of North America’s equity market. In addition, the number of companies which are listed on any specific exchange may differ, as a company might move from an exchange to another or be delisted or added. But, delisting or moving companies on the exchanges aren’t factors in the methodology of Value Line Index, regardless, whether the arithmetic or geometric calculations are employed.

The Value Line Geometric Composite Index

This refers to the original index which was introduced on the 30th of June, 1961. It is an index that is equally weighted with the use of a geometric average. The Value Line Geometric Composite Index’s daily price change is gotten by multiplying the each stock’s closing price ratio to its previous closing price and then raising the result to the reciprocal of the stock’s total number.

The Value Line Arithmetic Composite Index

This index was founded on the 1st of February, 1988 with the use of the arithmetic mean to closely imitate the index change if you held stocks portfolio in equal amounts. The daily change in the price of the Value Line Arithmetic Composite Index is calculated when you add the daily percent change of every stock, and then divide it by the total number of stocks.

References for Value Line Composite Index

Academic Research on Value Line Composite Index

An analysis of trading and nontrading period returns for the value line composite index; spot versus futures: A note, Maberly, E. D. (1987). Journal of Futures Markets, 7(5), 497-500.

Composite capability index for multiple product characteristics, Bothe, D. R. (1999). Quality Engineering, 12(2), 253-258.

An empirical examination of composite stock index futures pricing, Saunders Jr, E. M., & Mahajan, A. (1988). Journal of Futures Markets, 8(2), 211-228.

The week-of-the-month effect in stock returns: The evidence from the S&P composite index, Kohli, R. K., & Kohers, T. (1992). Journal of Economics and Finance, 16(2), 129.

The human development index: yet another redundant composite development indicator?, McGillivray, M. (1991). World Development, 19(10), 1461-1468.

Hedging performance and basis risk in stock index futures, Figlewski, S. (1984). The Journal of Finance, 39(3), 657-669.

Composite commodities and the problem of index numbers, Leontief, W. (1936). Econometrica: Journal of the Econometric Society, 39-59.

A theoretical comparison of composite index futures contracts, Lien, D., & Luo, X. (1993). Journal of Futures Markets, 13(7), 821-836.

Forecasting the New York stock exchange composite index with past price and interest rate on condition of volume spike, Leigh, W., Hightower, R., & Modani, N. (2005). Expert Systems with Applications, 28(1), 1-8.

Potential hedging use of a futures contract based on a composite stock index, Tosini, P. A., & Moriarty, E. J. (1982). Journal of Futures Markets, 2(1), 83-103.

 

Was this article helpful?