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Home , CAC 40, Dow Jones

جامعة عبد المالك السعدي ABDELMALEK ESSAÄDI

كلية العلوم القانونية University

واالقتصادية واالجتماعية Faculty of Law,Economic

تطوان and Social Sciences Tetouan.

TheThe DifferenceDifference BetweenBetween DOWDOW JONESJONES AndAnd CACCAC 4040

 Elaborated By:

Omar Bakouri Anas Ben Ameur Nahid Mohammadi  Framed By: Safaa Sabri Prof. Amin AKHRIF Moussaddak Harous

CONTENTS :

Introduction Chapter1 : Dow Jones Industrial Average 1. What is Dow Jones Industrial Average? 2. History and evolution : 3. The Dow Jones Indices 4. Market performance Chapter 2 : CAC 40 (Continuous Assisted Quotation) : 1. History 2. Rules 3. Composition Chapter 3 : The difference between Dow Jones and CAC 40 1. What Are the Differences Between the Dow Jones and CAC40? 2. Comparison between the performances of both indices Conclusion Bibliography

Introduction :

The CAC 40 (continuous quotation) is the main index of the Paris . Established with 1,000 basis points at December 31, 1987 by the Foreign Exchange Agents Company, the CAC 40 Index is determined from the prices of forty shares listed on the top of the list of top 100 companies whose trades are highest. abundant on Paris which is part of Euronext, the first European stock exchange. These companies, representative of the different business lines, in principle reflect the overall trend of the economy of large French companies and their list is reviewed regularly to maintain this representativeness. The Dow Jones Industrial Average (abbreviated DJIA and often shortened to Dow Jones) is the oldest index of New York stock exchanges and the oldest stock index in the world. This index is owned by Dow Jones Indexes, a joint venture owned 90% by CME Group and 10% by Dow Jones and Company.

Chapter 1 : Dow Jones Industrial Average

1. What is Dow Jones Industrial Average? The Dow Jones Industrial Average , also called DJIA, the Industrial Average, the Dow Jones, the Dow Jones Industrial, ^DJI, the Dow 30 or simply the Dow, is a and one of several indices created by Wall Street Journal editor and Dow Jones & Company co- founder . The industrial average was first calculated on May 26, 1896. Currently owned by S&P Dow Jones Indices, which is majority owned by S&P Global, it is the most notable of the Dow Averages, of which the first (non-industrial) was originally published on February 16, 1885. The averages are named after Dow and one of his business associates, statistician Edward Jones. It is an index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market. It is the second-oldest U.S. market index after the Dow Jones Transportation Average, which was also created by Dow. 2. History and evolution : The history of the Dow Jones industrial average is a history of the U.S. economy. The DJIA was first published in 1898 as an index of 12 . In October 1928, it expanded to 30. This visualization tracks the companies that, over the past 89 years, have entered and left the iconic index as their fortunes rose and fell. The Dow Jones Industrial Average was created by Charles Dow, one of the founders of Dow Jones & Co., the same firm that gave birth to . Its predecessor was born on February 16th, 1885, when Charles published a daily average of twelve stocks he had selected, originally consisting of two industrial companies and ten railroads. Within a few years, he had expanded the list to twenty stocks.

Four years later, Charles realized that industrial companies were quickly becoming more important than railroads. He adjusted the original index (on Wall Street, this process is known as “reconstituting”) and renamed it the Dow Jones Rail Average . He then created a new index of stocks consisting of twelve companies and called it the Dow Jones Industrial Average or DJIA for short. The process for calculating the reported figures for these new indices was the same: He added up the stock price of the companies he had chosen, divided by the number of companies in the index at the time, and published the result. Since the close on September 1, 2017, the Dow Jones Industrial Average has consisted of the following 30 major companies. 3. The Dow Jones Indices: The original components of the Dow Jones Industrials have changed over the years, and the index no longer represents companies that are in strictly agricultural and "heavy industries" such as tobacco, sugar, iron, leather, and rubber. As the U.S. economy has grown to rely on non-industrial sectors, greater emphasis has been placed on companies providing financial services, retailing, and technology. The first Dow Jones Index to be introduced was the Industrial Average, which was initially published on May 26, 1896. Leveraging the popularity and success of the industrials, Charles Dow later introduced the Dow Jones Transportation Average on October 26, 1896, and the Dow Jones Utility Average on January 2, 1929. Dow Jones Industrials: Today, the Dow Jones Industrial Average consists of 30 companies that are thought to best mirror the U.S. economy. Representative companies of the Industrials include 3M, Caterpillar, The Home Depot, JPMorgan Chase, Microsoft, McDonalds and NIKE. The Dow

is normally quoted as an index. This means the stock price of each company is multiplied by a weighting factor to derive the composite index number. By using an index, and introducing a weighting into the formula, companies can be inserted into the average without disrupting the historical movement of the index. Dow Jones Transportation: The Dow Jones Transportation Index consists of 20 companies that provide transportation services including rail, trucking, airlines, and automobiles. Representative companies in the Index include CSX Corp., FedEx Corporation, Overseas Ship holding Group, Southwest Airlines, and Ryder System, Inc. Just like the Industrials, each component or company in the Transportation index has a weighting. Dow Jones Utility: The last of the Dow indexes to be introduced, the Dow Jones Utility Average, consists of 15 companies providing electricity and natural gas to consumers across the United States. Representative companies in the Index include Consolidated Edison, Exelon, Southern 4. Market performance : Edit With the current inclusion of only 30 stocks, critics such as Ric Edelman argue that the DJIA is not a very accurate representation of overall market performance. Still, it is the most cited and most widely recognized of the stock market indices. Additionally, the DJIA is criticized for being a price-weighted average, which gives higher-priced stocks more influence over the average than their lower-priced counterparts, but takes no account of the relative industry size or of the components. For example, a $1 increase in a lower-priced stock can be negated by a $1

decrease in a much higher-priced stock, even though the lower- priced stock experienced a larger percentage change. In addition, a $1 move in the smallest component of the DJIA has the same effect as a $1 move in the largest component of the average. As of August 2017, Boeing and 3M are among the highest priced stocks in the average and therefore have the greatest influence on it. Alternately, Cisco Systems and General Electric are among the lowest priced stocks in the average and have the least amount of sway in the price movement. Many critics of the DJIA recommend the float-adjusted market-value weighted S&P 500 or the , the latter of which includes all U.S. equity securities, as better indicators of the U.S. stock market.

Chapter 2 : CAC 40 (Continuos Assisted Quotation):

1. History : The CAC 40 is a benchmark French stock market index. The index represents a capitalization-weighted measure of the 40 most significant values among the 100 highest market caps on the (formerly the Paris Bourse). It is one of the main national indices of the pan-European stock exchange group Euronext alongside ' BEL20, 's PSI-20 and Amsterdam's AEX. The CAC 40 takes its name from the Paris Bourse's early automation system Continuous Assisted Quotation. Its base value of 1,000 was set on 31 December 1987, equivalent to a market capitalisation of 370,437,433,957.70 French francs. In common with many major world stock markets, its all-time high to date (6922.33 points) was reached at the peak of the dot-com bubble in September 2000. On 1 December 2003, the index's weighting system switched from being dependent on total market capitalization to free float market cap only, in line with other leading indices. 2. Rules:  Selection

The CAC 40 index composition is reviewed quarterly by an independent Index Steering Committee (French: ConseilScientifique). If any changes are made, they are effected a minimum of two weeks after the review meeting. At each review date, the companies listed on Euronext Paris are ranked according to float market and share turnover over the prior 12 months. From the top 100 companies in this ranking, forty are chosen to enter the CAC 40 such that it is "a relevant benchmark for portfolio management" and "a suitable underlying asset for derivatives products". If a company has more than one class of shares traded on the exchange, only the most actively traded of these will be accepted into the index (generally this will be the ordinary share).

 Weighting

The CAC 40 is a capitalization-weighted index. The number of shares issued (used to calculate the market cap and hence the index weight) of a company is reviewed quarterly, on the third Friday of March, June, September and December. Since December 2003, the index weightings of companies in the index have been capped at 15% at each quarterly index review, but these range freely with share price subsequently. A capping factor is used to limit the weights to 15% (if necessary), and is reviewed annually by the Index Steering Committee on the third Friday of September.

3. Composition :

A Louis Vuitton store in Hong Kong, part of LVMH group.

Renault Zoe, a five-door supermini electric car manufactured by .

Pont de Normandie, built by and Vinci, the largest construction company in the world by revenue.

The index consists of the following companies as of the quarterly update effective September 2017.

Company Sector Ticker

Accor hotels EPA:AC

Air Liquide commoditychemicals EPA:AI

Airbus aerospace EPA:AIR

ArcelorMittal steel AMS:MT , NYSE:MT

Atos IT services

AXA full line insurance EPA:CS

BNP Paribas banks EPA:BNP

Bouygues heavy construction EPA:EN

Capgemini IT services EPA:CAP

Carrefour foodretailers and EPA:CA wholesalers

Crédit Agricole banks EPA:ACA

Danone foodproducts EPA:BN

Engie gas and electric utility EPA:ENGI

Essilor medical supplies EPA:EI

TechnipFMC Oil and Gas services

Kering retail business EPA:KER

Klépierre real estate EPA:LI

L'Oréal personalproducts EPA:OR

LafargeHolcim building materials and VTX:LHN fixtures

Legrand electrical components EPA:LR and equipment

LVMH clothing and accessories EPA:MC

Michelin tires EPA:ML

Orange telecommunications NYSE:ORAN

Pernod Ricard distillers and vintners EPA:RI

Groupe PSA automobiles EPA:UG

Publicis media agencies EPA:PUB

Renault automobiles EPA:RNO

Safran aerospace and defence EPA:SAF

Saint-Gobain building materials and EPA:SGO fixtures

Sanofi pharmaceuticals NYSE:SNY

Schneider Electric electrical components EPA:SU and equipment

Société Générale banks EPA:GLE

Sodexo food services and EPA:SW facilities management

SOLVAY Chemicals

STMICROELECTRONICS Semiconductors

Total integratedoil and gas NYSE:TOT

Unibail-Rodamco real estateinvestment AMS:UL trusts

Valeo automotive supplier EPA:FR

Veolia water, waste, transport, EPA:VIE energy

Vinci heavy construction EPA:DG

Chapter 3 : The difference between Dow Jones and CAC 40

1. What Are the Differences Between the Dow Jones and CAC40?

 The CAC 40 is the indicator of price evolution of large companies (it is determined from the price of forty shares listed on the first market among the hundred companies whose trade is most abundant on the Paris stock exchange). Dow Jones is the same as CAC 40 except that it only accounts for 30 companies and is focused on the .

 The methods of calculation of these two indices are radically different; the method used by the DJIA is weighted by its price while that CAC40 is weighted by its market capitalization.

2. Comparison between the performances of both indices:

Over a period of 53 years (chart below since 1962), the average annual progression of the Dow Jones index, expressed in dollars, is 6.27% / year while that of the reconstituted CAC 40, in francs then in euros, is 4.69% / year.

The comparison between the 2 indices in their original currency proves nothing, it reflects, during this period, that a US investor on the Dow Jones had his capital multiplied by 24.94 against 11.30 for an other investor on the CAC40.

From 1962 to 2000, even if the indexes move away for short periods, they come closer to find equivalent average performances.

After the end of the Second World War, and in 1971, the end of the Bretton Woods system, greater stability between the dollar and the franc resulted a greater stability between the two indices, each in its base currency, until 2000.

Yet in the beginning of 2000 we were at x16.12 for the Dow Jones against x14.25 for the CAC 40.

From 2000, (the advent of the Euro), even if the 2 indices are strongly correlated and in phase, there is, today, a strong divergence

in favor of the Dow Jones index which has strongly accentuated in the summer of 2011.

Conclusion:

Stock indexes are indicators used by investors to analyze, compare and evaluate the trend of a market or a sector of activity, thanks to the average performance of the values of the index. They also serve as underlying in many financial products such as trackers, turbos, warrants, futures and options. The most popular indices in France are: CAC40, SBF 80, SBF120 etc. While the most popular indices in the world are : Dow Jones , DAX30 (Deutscher Aktienindex), Le FTSE 100 (Financial Times Stock Exchange), Dow Jones, Le S&P 500 (Standard and Poor's)etc. The indices DOW JONES and CAC40 are strongly correlated and in phase, there is, today, a strong divergence in favor of the Dow Jones index which has strongly accentuated in the summer of 2011.

Bibliography:

 https://www.zonebourse.com/DJ-INDUSTRIAL- 4945/graphiques-comparatif/

 http://canal-europ.com/comparaison-cac-40-et-dow- jones/#prettyPhoto

 https://www.binck.fr/formations/espace-bourse- pratique/les-indices-boursiers

 https://fr.wikipedia.org/wiki/CAC_40

 https://fr.wikipedia.org/wiki/Dow_Jones_Industrial_Ave rage