Impact of Stock Indices Choice on Basic Investment Characteristics: The Case of Amman Stock Exchange

Ass’ad H. Al-Ali, Jathal A. El-Sma'el


This study examined the difference in means among monthly market returns and whether such differences would generate differences on basic investment characteristics (expected return, systematic risk and unsystematic risk) for individual stocks and portfolio, that was estimated by the following different market indices in Amman Stock Exchange: Value Weighted Index (VWI), Equally Weighed Index (EWI), Free Float Index (FFI), Atlas Market Index (AMI), and Atlas Small Market Index (ASMI). Paired Sample T.test was used to examine these differences and market model to generate basic investment characteristics for the individual stocks and the investment portfolio as well.

The main findings of this study indicated no statistical significant differences among market indices that may lead to differences in basic investment characteristics for individual stock or investment portfolio. The study also examined the accuracy of the five market indices by comparing Mean Square Error term. The result suggested that Equally Weighted Index was the least biased and most accurate of the five market indices for the study period from January 2000 to September 2006. The researchers recommend using different return generating models such as Two-Factor Model and Multi-Factor Model.


Stock market indices, Portfolio Theory, Market Model, Stock expected return; Systematic risk, Unsystematic Risk and Amman Stock Exchange.

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