A question of indices

INVESTORS have become a demanding lot of late. Among their requirements: equity indices both broader and narrower, tailored benchmarks and construction methods that are easily understood. But top of their wish list are indices that reflect the number of shares that they can actually buy and sell. For shares in many firms this is often difficult: they are tied up in corporate cross-holdings, private hands, government holdings or by legal restrictions. The effect is often to drive up the price of scarce shares in much-used indices. Now the people who compile indices are changing the way in which they calculate them to take account of such scarcity. The results might be dramatic.