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Draft:Price Return Index

From Wikipedia, the free encyclopedia

A price return index (often only PR) is a way to calculate an index that measures only the price fluctuations of index components while not adjusting for dividends, interest, rights offerings and other distributions realized over a given period of time. The other main concept within Financial Indices is the total return index, which is including dividends, coupons and other distributions.

Famous Indices which are calculated as price return index are S&P 500, Dow Jones Industrial Average, Nasdaq 100 or the European EURO STOXX 50.[1]

Criticism

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Given the fact that the price return index neglects dividends, coupons or other income, it might under-represent the total return profile of an financial asset, as those distributions might have a significant share of the total return an investor receives. Fund managers might compare their total return versus the price return and hence overstate their achieved performance, which might mislead fund investors.

Most of the leading index providers like MSCI, S&P or FTSE Russell are calculating their indices as total return and price return.

References

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  1. ^ "Price index". www.boerse-frankfurt.de. Retrieved 2024-09-05.