This professional options investor examines the performance of the Pacific Stock Exchange Technology Index compared with other market indices as a speculative and hedging tool. By Jerome M. Lederman, Eng.Sc.D.
Introduced in 1982, the Pacific Stock Exchange (PSE) Technology Index is a price-weighted, broad-based index
representing 100 listed and over-the-counter stocks. Essentially, the index is the cumulative value of one share of
each of its 100 component stocks, with adjustments made for stock splits and stock dividends equal to or greater than
10% of issue value. The index can be duplicated by owning an equal number of shares of each of the 100 stocks
represented. Over time, appreciating stocks take on a greater weighting while depreciating stocks take on less
weighting, but an equal number of shares in each of the 100 stocks represented by the PSE index will continue to
duplicate the index. Capitalization-weighted indices cannot be emulated as easily.
Fifteen industries are represented in the PSE. Figure 1 lists each industry and stock weighting as of September 6,
1995. Data communications is the highest-weighted industry (with 14.4% of the total), while electronic equipment is
the lowest (with 1.5% of the total). The average industry weighting is 6.7%. Xerox [XRX] represents the highest
weighting, at 2.99%. Given the number of stocks and the distribution among industry sectors, the resources needed
to change the price of the components so that they influence the index would be enormous.