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Index Education - Ch3 Intro
A framework for index integrity
Index governance refers to the systems or procedures that provide oversight of the design, calculation, and maintenance of indexes.
We believe that a solid governance infrastructure is essential to protect the integrity of the index construction and maintenance process, and to address conflicts of interest. It helps us deliver indexes that are relevant and may be used as the basis for financial products.
principles - index governance education
Principles for consistency, independence and transparency
We have identified five key index governance principles:
| Expert-led decision-making committees | Captures excess returns to stocks that have low prices relative to their fundamental value |
| Low size (small cap) | Captures excess returns of smaller firms (by market capitalization) relative to their larger counterparts |
| Momentum | Reflects excess returns to stocks with stronger past performance |
| Low volatility | Captures excess returns to stocks with lower than average volatility, beta, and/or idiosyncratic risk |
| Dividend yield | Captures excess returns to stocks that have higher-than-average dividend yields |
committees - index governance education
Committees that provide oversight
Our index governance framework is based on a committee structure. The committees are staffed by MSCI employees and each focuses on a specific area of oversight. From risk & regulatory compliance to new methodology and methodology developments.
The role of our internal committees is to ensure that decisions are not made unilaterally and that all sides of an issue are fully explored before decisions are made final. Their role is also to ensure that decisions are made in accordance with index methodologies and policies.
Our approach to index governance is built on transparency and independence. This is critical to objectivity, efficiency and avoiding conflicts of interest.
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Index Education - Ch3 Intro 2
Conclusion
To enable indexes to effectively be used as the basis for financial products, MSCI implements a governance process. It is designed to protect the integrity of the index construction and maintenance processes, while addressing any potential conflicts of interest.
Learn with us - Index education
Learn with us
Explore more about indexes and the financial markets in our education series. From learning the basics through to exploring more at depth – here you will find everything index-related. Go back to the Index Education hub overview.
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