Index Complexity – Science Confirms Intuition

An internet server computer doing complex data processing and calculating

Which of these US market indices is the most complex: DJI, NASDAQ or the S&P? Surely, it is the NASDAQ because it is full of tech stocks. The DJI, being based on what we would call the real economy, is quite the opposite, more suited for investors who are less risk-hungry. The S&P clearly lies somewhere in the middle.

The plot below reports complexity of the said indices over a period of thirteen years (2000-2013) and confirms the above common knowledge.


The interesting thing is that the complexity of the NASDAQ and S&P is increasing much faster than that of the Dow.

In terms of resilience – the capacity to absorb shocks and destabilizing events – the Dow, again, is the most resilient of the three indices. The NASDAQ is not only the most complex, it is also the least resilient index.


More soon.    science, not opinions.





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