DEFINITION of 'Tokyo Price Index - TOPIX'
The Tokyo Price Index (TOPIX) is a metric for stock prices on the Tokyo Stock Exchange (TSE). A capitalization-weighted index, TOPIX lists all firms that have been determined to be part of the "first section" of the TSE, a section that organizes all large firms on the exchange into one group. The second section pools all of the smaller remaining companies.
BREAKING DOWN 'Tokyo Price Index - TOPIX'
More so than the Nikkei, short for Japan's Nikkei 225 Stock Average, the TOPIX is often thought to provide a more appropriate representation of all the Japanese stock markets because it reflects a fairer depiction of price changes and inclusion of the largest companies trading on the TSE. The Nikkei is weighted by price and is comprised of only the top 225 blue-chip companies listed on the TSE.
The Sector Indices of TOPIX
The sector indices of TOPIX consist of indices created by dividing the constituents of TOPIX into 33 categories. These categories are determined according to the industrial sectors defined by the Securities Identification Code Committee (SICC). They include, but are not limited to, construction, textiles and apparels, nonferrous metals, machinery, electric power and gas, land transportation, air transportation, retail trade, banks, securities and commodity futures, real estate, insurance, agriculture and forestry, pharmaceuticals, iron and steel.
TOPIX has a number of subindices that are also published by the TSE. These include, but are not limited to, the TOPIX New Index Series, size-based TOPIX subindices, TOPIX sector indices, the Tokyo Stock Exchange Composite Index Series, the Tokyo Stock Exchange Dividend Focus 100 Index, the Tokyo Stock Exchange REIT Property Sector Index Series and the Tokyo Stock Exchange Mothers Index.
A Free Float Index
Across a series of three phases, TOPIX transitioned from a system that weighted companies based on a collective total figure of outstanding shares to a system that weights based on the total number of shares available to be traded. This is known as a free float. TOPIX’s transition began in 2005 and was completed in the summer of 2006. Though this transition is, essentially, a technicality, it has had a substantial impact on the actual weight of companies in the index. This is because a large majority of companies in Japan have significant holdings of shares of their business partners as part of sophisticated and strong business alliances, and said shares are then no longer included in the calculation of the weight of companies in the index.