01/03/2001

Considering the Free Float-Adjustment of the TOPIX - The Need for a New Index and Possible Effects of Implementation

Financial Research Department  Chief financial engineer Shingo Ide 

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Introduction

The two most prominent stock market indexes in Japan are the Nikkei 225 Average and Tokyo StockExchange Stock Price Index (TOPIX). The significant revision of the Nikkei Average in April 2000,and its large impact on the stock market, are still fresh on the market’s mind. Meanwhile, a new debatehas erupted over the TOPIX - whether to correct its shortcomings as a benchmark for asset managementby adjusting for free float shares. Doing so could cause some turmoil in the stock market as institutionalinvestors such as pension funds and life insurers readjust their portfolios.

This paper briefly describes the nature of the debate, and attempts to measure the impact of such achange of TOPIX on portfolios as well as on the market.

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Financial Research Department    Chief financial engineer

Shingo Ide

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03-3512-1852

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