OCTOBER Russell-Parametric Cross-Sectional Volatility (CrossVol ) Indexes Construction and Methodology

Transcription

1 OCTOBER 2010 Russell-Parametric Cross-Sectional Volatility (CrossVol ) Indexes Construction and Methodology

2 SEPTEMBER 2010 Russell-Parametric Cross-Sectional Volatility (CrossVol) Indexes Construction and Methodology TABLE OF CONTENTS SECTION Introduction... 1 What is CrossVol... 1 CrossVol Calculation... 1 SECTION Construction and Methodology... 2 Calculate one day CrossVol... 2 Calculate trailing 22-day average CrossVol... 2 Calculate monthly CrossVol... 2 SECTION Holiday handling... 3 APPENDIX A... 4 List of available Russell Indexes... 4

3 SECTION 1 Introduction What is CrossVol? CrossVol measures the return dispersion of a universe of securities at a single time point, weighted by the market capitalization of the security. CrossVol Calculation CrossVol i wi( ri R) 2 Where, w i = the beginning of period, float-adjusted capitalization weight of stock i r i = the total return of stock i for the period for which CrossVol is calculated R = the published return of the relevant Russell index for the period for which CrossVol is calculated The returns are the total return for a given holding period which includes price, dividend and currency returns. When calculating 1-day CrossVol, the return is the total return of the security on that day. For 1-Month CrossVol, the return will be the calendar month return of the stock. Calculation of rolling daily CrossVol will be a rolling daily average based on the last 22 days. PAGE 1

4 SECTION 2 Construction and Methodology We calculate the CrossVol values on a daily basis. The steps followed during the process are outlined below: Selecting the constituents of a Russell Index: For a complete list of Russell indexes for which the CrossVol values are available, see Appendix A. The table below provides a schematic for these indexes for which CrossVol is calculated. Region Size Style Sector Global All Cap Growth Technology Global ex-u.s. Large Cap Value Health Care Developed Small Cap Consumer Discretionary Developed ex-u.s. Consumer Staples Developed Europe ex-u.k. Energy Developed North America Materials & Processing Developed Asia Pacific Producer Durables Developed Europe Financial Services Emerging Utilities Emerging Asia BRIC Calculate one day CrossVol Calculate cross-sectional volatility of each index constituents on the given day. The 1-day CrossVol for each index measures the dispersion of those index constituent returns. Calculate trailing 22-day average CrossVol For each day, calculate a trailing 22-day average CrossVol number for each index. It is the average of the previous 22 days CrossVol numbers for the given index. Calculate monthly CrossVol At end of every month, calculate the total monthly return dispersion of the constituents in each index. We exclude securities that enter or leave the index during the month. We include securities that have name changes or are acquired by another index constituent. PAGE 2

5 SECTION 3 Holiday handling In the internal calculation of CrossVol, some of the stocks may have a zero return (for example, they had a country-specific holiday). We keep the securities in the calculations and assume that they realized a zero total return on that day. Index data calculations and availability: CrossVol index data will be available on a daily basis for all the indexes in the list in Appendix A. PAGE 3

6 APPENDIX A List of available Russell Indexes Preview File: Region Size Style Sector Global All Cap Growth No Sectors included Global ex-u.s. Large Cap Value Developed Small Cap Developed ex-u.s. Emerging Markets Country File: Country Size Style Sector Australia All Cap Growth No sectors included Austria Large Cap Value Belgium Small Cap Brazil Canada Chile China Colombia Czech Republic Denmark Egypt Finland France Germany Greece Hong Kong Hungary Iceland India Indonesia Ireland Israel Italy Japan Luxembourg Malaysia Mexico PAGE 4

7 Country Size Style Sector Morocco Netherlands New Zealand Norway Peru Philippines Poland Portugal Russia Singapore South Africa South Korea Spain Sweden Switzerland Taiwan Thailand Turkey United Kingdom United States United Arab Emirates Sector File: Region/Country Size Style Sector Global All Cap Growth Technology Global ex-u.s. Large Cap Value Health Care Developed Small Cap Consumer Discretionary Developed ex-u.s. Consumer Staples Developed Europe ex-u.k. Energy Developed North America Materials & Processing Developed Asia Pacific Producer Durables Developed Europe Financial Services Emerging Utilities Emerging Asia BRIC PAGE 5

8 Region File: Region Size Style Sector Global All Cap Growth No sectors included Global ex-u.s. Large Cap Value Developed Small Cap Developed ex-u.s. Developed Europe ex-u.k. Developed North America Developed Asia Pacific Developed Europe Emerging Emerging Asia BRIC PAGE 6

9 For more information about Russell Indexes call us or visit Americas: ; APAC: ; EMEA: Copyright Russell Investments All rights reserved. Russell Investments is a Washington, USA Corporation, which operates through subsidiaries worldwide and is a subsidiary of The Northwestern Mutual Life Insurance Company. Russell Investments is the owner of the trademarks, service marks and copyrights related to the Russell Indexes. The Russell/Parametric Cross-sectional Volatility Indexes contain methodologies designed by Parametric, LLC. Parametric is an industry-leading provider of structured portfolio management. Headquartered in Seattle, Washington, Parametric and its affiliate, Parametric Risk Advisors, offer a variety of portfolio solutions, including customized core equity portfolios (U.S., non-u.s. global Tax-Managed Core TM ), options strategies (DeltaShift SM ), emerging markets (Structured Emerging Markets TM ), and overlay portfolio management (OverlayOne TM ). Indexes are unmanaged and cannot be invested in directly. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. First use: September Revised October CORP-6199 PAGE 7