The full name of the Taiwan weighted index is the Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX). TAIEX is maintained by the Taiwan Stock Exchange Corporation (TSEC), and therefore is also called the TSEC Index.
Among the indices maintained by TSEC, TAIEX is the most widely recognized one, and it represents the overall performance of Taiwanese stock market. TAIEX is a market capitalization–weighted index— similar to the Standard & Poor’s Index—in contrast to price-weighted indices, such as the Dow Jones Industrial Average and the Nikkei Stock Average.
TAIEX is adjusted in the event of new listing, delisting, and new shares offerings, to offset the influence of nontrading activities on TAIEX. The base year value was set at 100 in 1966. Currently, there are more than 600 constituents in TAIEX.
Besides the major all-stocks index, the TAIEX series also derives subindices such as Electronics subindex, Finance subindex, and so on. Investors can gain exposure to the index through the futures and options traded on the Taiwan Futures Exchange. TAIEX is heavily weighted on technology-related firms, reflecting Taiwan’s important position in the global computer industry.
TAIEX covers all of the common stocks listed on TSEC, excluding preferred stocks, full-delivery stocks, and stocks listed for less than one calendar month. It is calculated as
Index = Current aggregate market value / Base value * 100.
The current aggregate market value is the aggregate of the market values obtained by multiplying the price of each component stock by the number of issued shares; however, stock of newly listed companies included in the calculation of the index may be accounted for on the basis of the number of shares currently listed. The base value at the time of commencement of calculation of the index base period is the current aggregate market value at that time. The formula for adjustment of the base value is as follows:
New base value = old base value * (aggregate market value after the change / aggregate market value before the change)
Aggregate market value after the change = aggregate market value before the change + the sum total of all changes in market value.
Subindices And TSEC Price Indices
The subindices are calculated and adjusted based on similar rules of TAIEX except for different groupings of the constituents. The subindices include the Finance subindex, the Electronics subindex, the Nonfinance subindex, the Nonelectronics subindex, the Nonfinance Nonelectronics subindex, and several Industrial subindices. Among all the sub-indices, the Finance subindex and Electronics subindex futures and options are also traded on the Taiwan Futures Exchange.
The Industrial subindices are calculated for different industrial sectors. In December 1986, eight Industrial subindices were introduced: Cement/ Glass/Ceramics, Textiles, Foods, Plastics/Chemicals/Rubber, Electric Machinery/Electric Appliance/ Cable/Electronics, Paper/Pulp, Construction, and Finance. In August 1995, TSEC introduced 14 additional Industrial subindices: Cement, Plastics, Electric Machinery, Electric Appliance/Cable, Automobile, Chemicals, Glass/Ceramics, Iron/Steel, Rubbers, Electronics, Transportation, Tourism, Retail, and Others. This expansion gave a broader perspective of industrial performances and a more comprehensive comparison with the overall market trend.
TSEC publishes TAIEX Price Indices and Total Return Indices. All of the TSEC Price Indices are constantly updated every minute during trading hours through the TSEC MIS system and information vendors’ networks. The Total Return Indices adjusted for dividends are only published at the end of each trading day, giving a better indicator to measure the performance of funds. The information can be easily accessed on the systems of local and international information vendors, such as Reuters, Bridge, Quick, Bloomberg, or Primark.
Currently, the total market capitalization of TAIEX is TWD 20.471 trillion ($623 million). The 10 largest companies of TAIEX, in terms of market capitalization in 2007, are (1) Taiwan Semiconductor Manufacturing, (2) Hon Hai Precision Industry, (3) Formosa Petrochemical, (4) Nan Ya Plastics, (5) Chunghwa Telecom, (6) Cathay Financial Holding, (7) Formosa Plastics Corp, (8) China Steel, (9) AU Optronics, and (10) Formosa Chemicals & Fiber.
Investors interested in Taiwan stock indices may also explore the TSEC Taiwan index series, which is introduced through cooperation between TSEC and FTSE Group. The most widely quoted one is the TSEC Taiwan 50 Index, which includes the 50 blue-chip stocks with the largest market capitalization and represents 70 percent of the Taiwanese stock market.
- H. Chiang and C. Y. Wang, “The Impact of Futures Trading on Spot Index Volatility: Evidence for Taiwan Index Futures,” Applied Economics Letters (v.9/6, 2002);
- Taiwan Stock Exchange Company (TSEC), www.tse .com.tw (cited March 2009);
- Yi-Hsien Wang and Chin-Tsai Lin, “Empirical Analysis of Political Uncertainty on TAIEX Stock Market,” Applied Economics Letters (v.15/7, 2008).
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