Free-Float Factor Calculation
Install and import#
npm install fintech-algorithmsimport { calculate } from "fintech-algorithms/index-and-benchmark-engineering/governance-and-maintenance/free-float-factor-calculation";Signature#
calculate(data)Derives the free-float factor by removing strategic, government, insider and cross-holdings, then rounds it to a band. Rounding is deliberate: unrounded factors would force a weight change every time a holding moved a fraction of a percent.
Parameters#
| Name | Type | Notes |
|---|---|---|
data | { records: Record[]; roundingStep: number } | roundingStep is the band width — 5% is common. It trades a little precision for a great deal less turnover. |
Returns#
{ results, roundingStep }
The raw and rounded factor per constituent, with the excluded holdings that produced it.
Errors#
- When roundingStep is not between 0 and 1 — throws
Complexity: time O(n × holdings),
space O(n).
Worked example#
verified This is the worked example published in the article, replayed by the test suite on every run. The output cannot drift.
Input#
{
"records": [
{
"id": "A",
"issuedShares": 1000000,
"strategicShares": 280000
},
{
"id": "B",
"issuedShares": 2000000,
"strategicShares": 900000
},
{
"id": "C",
"issuedShares": 500000,
"strategicShares": 25000
}
],
"roundingStep": 0.05
}Call#
calculate(data)Returns#
object with 2 fields: results, roundingStep
{
"results": [
{
"id": "A",
"rawFreeFloat": 0.72,
"freeFloatFactor": 0.75
},
{
"id": "B",
"rawFreeFloat": 0.55,
"freeFloatFactor": 0.55
},
{
"id": "C",
"rawFreeFloat": 0.95,
"freeFloatFactor": 0.95
}
],
"roundingStep": 0.05
}Diagrams#
Calculation flow#
Free-Float Factor Calculation calculation flow
flowchart LR
A["Point-in-time inputs"] --> B["Validate units and timing"]
B --> C{"Contract feasible?"}
C -->|No| D["Reject with reason"]
C -->|Yes| E["Calculate Free-Float Factor Calculation"]
E --> F["Recompute invariants"]
F --> G{"Checks pass?"}
G -->|No| D
G -->|Yes| H["Publish audited output"]
Free-Float Factor Calculation methodology state
stateDiagram-v2
[*] --> FrozenInputs
FrozenInputs --> Validated: contract passes
FrozenInputs --> Rejected: missing or infeasible
Validated --> Calculated: apply named rule
Calculated --> Audited: invariants pass
Calculated --> Rejected: invariant fails
Audited --> Published: version and timestamp recorded
Published --> Revised: approved correction
Revised --> FrozenInputs: rebuild from retained source state
How it works#
This page states the contract — how to call it correctly. The article explains the concept: why it works, and where it breaks.
References#
- S&P Dow Jones Indices Index Mathematics Methodology — S&P Dow Jones Indices
- S&P DJI Equity Indices Policies & Practices — S&P Dow Jones Indices
- FTSE Russell Capping Methodology — FTSE Russell, LSEG
- FTSE Russell Index Policy and Methodology Library — FTSE Russell, LSEG
- MSCI Global Investable Market Indexes Methodology Library — MSCI
- MSCI Minimum Volatility Indexes Methodology — MSCI
- S&P Risk Control 2.0 Indices Methodology — S&P Dow Jones Indices
- Principles for Financial Benchmarks — International Organization of Securities Commissions
- Regulation (EU) 2016/1011 — European Union
- Portfolio Selection — Harry Markowitz
- On the Properties of Equally-Weighted Risk Contributions Portfolios — Sébastien Maillard, Thierry Roncalli, and Jérôme Teïletche
- Fundamental Indexation — Robert Arnott, Jason Hsu, and Philip Moore
- FTSE Currency Hedging Methodology Overview — FTSE Russell, LSEG