Wilshire 5000: Broadest Barometer of American Stock Performance

The Wilshire 5000 is a stock index comprising 5,000 common stocks, representing the most comprehensive barometer of American stock market performance.

The Wilshire 5000 is a stock market index that includes approximately 5,000 common stocks. It is widely regarded as the broadest measure of American stock market performance. This index aims to reflect the total market capitalization of all U.S.-headquartered equity securities with readily available price data.

History and Development

The Wilshire 5000 was created by Wilshire Associates in 1974 and is named for its original number of components, though the actual number of stocks has fluctuated over time. The index is designed to track the performance of the entire U.S. stock market, from large-cap companies to micro-cap entities.

Important Milestones

• 1974: Creation by Wilshire Associates.
• 1980s-1990s: Periods of expansion and subsequent reductions as the number of publicly traded companies fluctuated.

Composition and Characteristics

Types of Stocks Included

The Wilshire 5000 includes:

• Large-Cap Stocks: Well-established companies with large market capitalizations.
• Mid-Cap Stocks: Companies with moderate market capitalizations.
• Small-Cap Stocks: Companies with relatively small market capitalizations.
• Micro-Cap Stocks: Very small companies with the smallest market capitalizations.

Calculation and Updates

The index is calculated using the market capitalization-weighted formula:

$$ \text{Index Value} = \frac{\sum_{\text{All Stocks}} (\text{Shares Outstanding} \times \text{Price per Share})}{\text{Divisor}} $$

The divisor is adjusted to maintain continuity whenever there are structural changes like stock splits, dividends, or new stock additions/deletions.

Special Considerations

Market Representation

The Wilshire 5000 is unique as it incorporates virtually all equities on U.S. exchanges, thereby giving a complete snapshot of the market. This inclusivity makes it a useful tool for portfolio managers and investors looking to gauge overall market trends.

Comparisons with Other Indices

• Wilshire 5000 vs. S&P 500: While the S&P 500 focuses on 500 of the largest companies, the Wilshire 5000 includes a much broader array of stocks.
• Wilshire 5000 vs. Russell 3000: The Russell 3000 includes the largest 3,000 U.S. companies by market cap, providing a partial but more specific market reflection.

Applicability and Usage

Investment Strategies

Fund managers and investors use the Wilshire 5000 to:

• Benchmark overall market performance.
• Construct diversified investment portfolios.

Economic Analysis

Economists and analysts examine Wilshire 5000 trends to assess economic health and market conditions given its comprehensive coverage.

FAQs

Is the Wilshire 5000 limited to exactly 5,000 stocks?

No, the number of stocks in the Wilshire 5000 fluctuates. It initially included around 5,000 stocks, but changes as companies enter or exit the market.

Why is the Wilshire 5000 considered a broad market indicator?

The Wilshire 5000 includes stocks from the full spectrum of U.S. public companies, across various sectors and sizes, providing a thorough overview of the market’s performance.

Summary

In summary, the Wilshire 5000 is the most inclusive U.S. stock market index and provides a complete view of the market’s performance. It includes a wide scope of stock categories, making it an essential tool for investors, portfolio managers, and economic analysts alike.

References

1. Wilshire Associates. “Wilshire 5000.” Wilshire Index
2. S&P Global. “Understanding Indices: Wilshire 5000 vs. S&P 500.” S&P Global
3. CRSP US Stock Databases. “Historical Data of US Stock Market.” CRSP

By incorporating a wide range of market segments and capitalization sizes, the Wilshire 5000 stands as a vital metric for understanding and analyzing the complex dynamics of the U.S. stock market.