What is Tokyo Price Index ?
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The Tokyo Price Index—commonly referred to as TOPIX—is a metric for stock prices on the Tokyo Stock Exchange (TSE). TOPIX is a capitalization-weighted index that lists all firms in the "first section" of the TSE, a section that organizes all large firms on the exchange into one group. The second section of the TSE pools all of the smaller remaining companies.
Definition
The Tokyo Price Index, commonly known as TOPIX, is a measure of stock prices on the Tokyo Stock Exchange (TSE). TOPIX is a market capitalization-weighted index that lists all companies in the 'First Section' of the TSE, which organizes all large companies on the exchange into one group.
Origin
TOPIX was first published on July 1, 1968, with the aim of providing a more comprehensive market performance indicator. It was created to reflect changes in the Japanese economy and to offer investors a broader market perspective.
Categories and Features
TOPIX is mainly divided into two sections: the First Section includes all large companies, while the Second Section gathers all remaining smaller companies. The market capitalization-weighted method of TOPIX means that price changes in larger companies have a greater impact on the index. Its advantage is reflecting overall market trends, but a disadvantage is the potential dominance by a few large companies.
Case Studies
A typical case is Toyota Motor Corporation, one of Japan's largest automakers, whose stock price changes significantly impact TOPIX. Another example is Sony Corporation, whose performance in electronics and entertainment also affects the index's fluctuations.
Common Issues
Investors using TOPIX might encounter issues such as the index being dominated by a few large companies, leading to misleading interpretations of the overall market. Additionally, international investors may need to consider the impact of currency fluctuations on investment returns.
