Trader’s Guide to the CAC 40 Index
Similar to America’s Dow Jones Industrial Average, the CAC 40 Index is the benchmark stock market index in France. Comprising 40 of France’s largest listed equities measured by liquidity and market capitalisation, it is almost entirely made up of French-domiciled companies, however it has a multinational reach that makes it one of the most popular European financial exchanges with foreign investors. CAC stands for “Cotation Assistee en Continu” and it is one of the primary indices of the Europe-wide stock exchange group known as Euronext with Lisbon’s PSI-20, Brussels’ BEL20 and Amsterdam’s AEX. It is the index that is typically used to represent the overall direction and level of the French financial market. The CAC 40 Index dates back to 1987 when it was begun on December 31st of that year with a base value of 1000. During the early 2000s dot com boom, it reached a high of almost 7,000 but in recent years it has fallen back to about 3,000 due to the 2011 economic crisis. There have been a number of other indices which have been introduced to operate alongside the CAC 40, including the CAC Mid 60 and CAC Next 20, and these are also popular with investors. Around 45% of the shares listed on the CAC 40 are owned by overseas investors, and this is more than any of the other main European indices. The most significant overseas holders of CAC 40 shares include investors from Germany, Japan and the UK. This is probably because the companies listed on the CAC 40 are generally more international than those listed on other European market indices, with many of the companies conducting a large amount of their business overseas, and employing more than two thirds of their workers from outside France.
Which Companies are Found in the CAC 40 Index?
The CAC 40 consists of France’s 40 biggest equities in terms of their liquidity and market capitalisation, and forms the most used benchmark for the Parisian market. Every quarter, these equities are reviewed by an independent body that is permitted to remove or add components, although no single component can make up more than 15% of the value of the total index. Some of the CAC 40 Index’s most recognisable components include:
- Sanofi – a France-based diversified and global healthcare company that runs 55 projects within its clinical development portfolio
- Total SA – an international gas and oil company based in France and with operations across over 130 countries
- BNP Paribas – a France based banking group which has a focus on investment, retail and corporate worldwide banking operations
- Societe Generale – a banking group based within France and with operations across 85 countries
- France Telecom – a telecommunications operator based in France with a focus on both mobile and fixed communications
- ArcelorMittal – a global producer of steel with a base in France that produces shipments of around 85 million tons and total production of about 90.6 million tons
A wide selection of industries are found on the CAC 40 index, representing a large part of the French economy. Those industries which are most widely found on the index comprise airlines, hotels, telecommunications, chemicals, steel, industrial materials, insurance, banking, construction, electronic equipment, computer software, aerospace and defence, supermarkets, medical instruments and supplies, electric utilities, gas and oil, beverages and food, building materials, personal products, publishing, tyres, apparel, retail, automakers, pharmaceuticals, semiconductors, real estate, media, water and entertainment.
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A Short History of the CAC 40 Index
Originally, the term CAC was an acronym for “Compagnie des Agents de Change”, which was the name given to the body which initially operated the Paris Stock Exchange. Agents de Change have been stock trading in France since around the 16th century, and during the Napoleonic government, a Compagne de Agents de Change was established in the year 1801 to coincide with the establishment of the Paris Stock Exchange, with 71 official brokers being designated to perform all trading activities. In 1988, the Stock Market Reform Act was passed which dissolved the Compagnie des Agents de Change and the Societe des Bourses Francaises was incorporated in its place as a limited company. The term CAC remained, with the CAC 40 index being launched officially on June 15th 1988. Originally it had a base value set at 1,000 which referred to its position on December 31st 1987. When it was launched in France, it happened to coincide with the establishment of electronic trading, and thus the acronym CAC became associated with “Cotation Assistee en Continue” (which translates as Continuous Assisted Quotation), which was an early form of automation system. The CAC 40 index, in common with many other world stock markets, reached its all time high in the dot.com boom of September 2000 at 6922.33 points, and its record low (893.82 points) was reached in January 1988. The index changed its weighting system in December 2003 from a system that was entirely dependent on total market capitalisation into a system that had a free float market cap, to fall into line with the other leading indices.
Listing Companies on the CAC 40 Index
The companies that make up the CAC 40 index are chosen and overseen by Le Conseil Scientifique, a steering committee with members taken from the Autorite des Marches Financiers (AMF), the French market regulator, as well as representatives from the French Treasury Department, France’s Central Bank and leading economists and academics. In order to appear on the CAC 40 index, a stock must meet certain criteria that has been set regarding trading volume and market capitalisation on the Euronext Paris Exchange. Its issuers must also have maintained significant assets or have a primary headquarters located in France. The nationality of the issuer has no bearing on whether or not a company can be listed on the index. The measurement of market capitalisation is based upon the free float of the issuer’s shares, with a minimum required of 15%. Because the CAC 40 is a market capitalisation based index, it is different from many of the other well known global indices like the Nikkei 225 or the Dow Jones Industrial Average, all of which are indices that are price weighted.
Other educational materials
- Dow Jones Industrial Average
- FTSE 100 Index
- FTSE AIM All-Share Index
- FTSE All-Share Index
- Japanese Exchange Group (JPX)
Recommended further readings
- Efficiency tests of the French index (CAC 40) options market. Capelle-Blancard, G. and Chaudhury, M., 2001, October. In EFMA 2002 London Meetings.
- “Direct and Indirect Effects of Index ETFs on Spot‐Futures Pricing and Liquidity: Evidence from the CAC 40 Index.” Deville, Laurent, Carole Gresse, and Béatrice De Séverac. European Financial Management 20.2 (2014): 352-373.