The 137 Year History of Indices in Finance

From @DowJones to @defipulse

A (brief) thread

1/

Indices are data tools which gauge the average price across a broad range of products with some common theme

Diversification being the only "free lunch" in investing, investors index fund products for their lower (on-average) risk profile than individual assets

2/

The first known index was created in 1884--the Dow Jones Transportation Index (or "Transports")--by WSJ editor Charles Dow and his data scientist partner Edward Jones

Fun Fact: Dow is one of the "fathers of technical analysis"

3/

In 1896, the Dow Jones Industrial Average (DJIA) was enacted

To this day, DJIA remains one of the most popular indices, tracking the 30 largest U.S. equities by market capitalization

Then & Now

4/



The DJIA utilizes a price-weighted methodology, meaning A stock trading at $100 will make up 10 times more of the total index compared to a stock trading at $10

Modern indices often utilize a market-cap weighting to capture relative standing more accurately

5/

Index *Funds* are the products which are used to gain exposure to the assets an index tracks.

The invention of the index fund is credited to John Bogle, founder of @Vanguard_Group, in 1975.

6/



There are many ways to weight an index, with varying tradeoffs. Some of which we see in DeFi:

-Market Cap (DPI)
-Price
-Equal (PIPT, DEFI+L, CC10)
-Fundamental
-Factor
-Volatility

7/

And Indices can track a broad range of themes by coverage, including:

-Country (S&P 500, FTSE 100)
-Exchange (NASDAQ, Euronext 100)
-Characteristic (small cap equities)
-Sector (DeFi Pulse, Nasdaq Biotech, REIT Index, Ark 3D Printing)

8/

In recent years, more tailored indices built around social change and disruptive technology have begun to thrive, driven by firms like @ARKInvest

@howardlindzon eloquently speaks to the unbundling of indexes here: https://howardlindzon.com/the-unbundling-of-indexes-and-markets-further-explained/

9/

At @indexcoop, we believe in the power of tailored index products and the ability to bring them to life on Ethereum with @SetProtocol

DeFi Pulse Index is step one in a multi-decade plan to offer the easiest access to financial products which meet unique customer goals!