All Ordinaries Index

Established in January 1980, the All Ordinaries or All Ordinaries Index (known colloquially as the All Ords) is the oldest stock index in Australia, so called because it contains nearly all ordinary (or common) stock listed on the Australian Securities Exchange (ASX). Its creation coincided with the establishment in September 1987 of the then Australian Stock Exchange (now ASX following a merger with the Sydney Futures Exchange in July 2006) from six separate state-based exchanges in the capital cities of Sydney, Melbourne, Brisbane, Perth, Adelaide, and Hobart.

Like all market indexes, the All Ordinaries is a summary measure of the movement of stock values that result when stock in companies held by individual and corporate stockholders trade on the ASX. It is useful as an indicator of overall share market performance and current trends. It also provides a performance benchmark for invested funds, a record of market cycles, and an indicator of stock market reactions to economic events. As a market index, the All Ordinaries is helpful in the construction of [Page 46]asset pricing models, like the capital asset pricing model (CAPM), where the All Ordinaries serves as the market factor and is used to calculate beta (the sensitivity of a stock's return to market or systematic or nondiversifiable forces). Daily data on the All Ordinaries for these purposes is available since 1980; movements before 1980 have been recalculated using changes in the older state-based indices (mostly the Sydney Stock Exchange). Reconstructed daily observations for the All Ordinaries from January 1958 and backdated monthly data from October 1882 are now available.

When established, the All Ordinaries had a base index of 500–28 years later in December 2007 the All Ordinaries was at 6,421, meaning that it had increased more than twelvefold in nominal terms (that is, not accounting for inflation). This represents an arithmetic return of 1,184 percent and a compound annual return of 9.54 percent. On November 1, 2007, the All Ordinaries hit a record high of 6,873. However, on January 22, 2008, the All Ordinaries plunged 408.9 points (7.26 percent) to 5,222, its fourth-worst day on record and worst performance since October 29, 1987, when it fell 7.52 percent. Since then, it has partially recovered, and as of June 6, 2008, stands at 5,633.

On April 3, 2000, the ASX reconstituted the All Ordinaries from a pool of 229–330 stocks to include the 500 largest companies. Prior to this change, to be included in the All Ordinaries portfolio used for calculating the index a company needed to have a market value of at least 0.2 percent of all domestic equities quoted on the ASX and maintain an average turnover of at least 0.5 percent of its quoted shares each month. The new index now accounts for about 99 percent (up from 90 percent) of the ASX's total market capitalization. This change coincided with the introduction of new benchmark indexes managed by Standard and Poor's (S&P), including the S&P/ASX 300 (i.e., the 300 largest companies listed on the ASX), S&P/ASX 200, S&P/ASX 100, S&P/ASX 50, S&P/ASX 20, and the S&P/ASX Small Ordinaries (i.e., small and medium-sized companies). The importance of the All Ordinaries has diminished with the introduction of the new S&P/ASX indexes.

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