What Is CAC 40 and How Does It Work in Financial Markets?

The CAC 40 is a key stock market index tracking 40 major companies listed on Euronext Paris. It serves as a benchmark for the French economy and is closely watched by investors. Movements in the index reflect broader market trends, investor sentiment, and economic conditions in France and beyond.

Composition Criteria

The CAC 40 includes companies that meet specific eligibility requirements set by Euronext Paris. Selection is based on market capitalization and trading volume, ensuring the index represents the most actively traded firms. Companies must be listed on Euronext Paris and have sufficient liquidity, meaning their shares are frequently bought and sold.

A key factor for inclusion is free-float market capitalization, which measures the total value of shares available for public trading, excluding those held by insiders or governments. This ensures the index reflects stocks accessible to investors rather than those tightly controlled by a few entities.

An independent committee, the Conseil Scientifique, reviews the index composition quarterly. It evaluates whether companies still meet the necessary criteria and can replace underperforming stocks with stronger candidates, keeping the index representative of France’s most significant companies.

Calculation Method

The CAC 40 is calculated using a free-float market capitalization-weighted formula, meaning its value is derived from the total market value of its constituent stocks, adjusted for the number of shares available for trading. Companies with a larger public float have a greater influence on the index’s movements.

The index value is determined by summing the free-float adjusted market capitalization of all 40 constituents and dividing it by a fixed divisor. This divisor is periodically adjusted to maintain continuity when corporate actions such as stock splits, mergers, or dividend distributions occur.

Since the CAC 40 is a price index rather than a total return index, it does not include dividends in its calculation. Investors tracking the CAC 40 should consider dividend yields separately when evaluating returns.

Sector Breakdown

The CAC 40 includes companies from a range of industries, reflecting France’s corporate landscape. Luxury goods play a significant role, with global giants like LVMH, Hermès, and Kering representing the country’s dominance in high-end fashion. These firms benefit from strong international demand, particularly from China and the United States.

Financial services also hold a substantial presence, with major banks such as BNP Paribas and Société Générale contributing to the index. These institutions are influenced by European Central Bank policies, credit market conditions, and global economic cycles. Insurance companies like Axa further diversify the financial sector.

Industrial and energy companies provide exposure to France’s manufacturing and infrastructure sectors. Firms like Schneider Electric and Airbus highlight strengths in automation, aerospace, and defense. Airbus benefits from long-term aircraft orders and global airline expansion. Energy companies like TotalEnergies operate in both traditional oil and gas markets and renewable energy, reflecting shifts in global energy policy.

Weighting Approach

The CAC 40 assigns different levels of influence to its constituent stocks based on their free-float market capitalization. To prevent any single company from disproportionately driving performance, no individual stock can exceed 15% of the total index weight. If a company surpasses this threshold, its weighting is adjusted.

This methodology aligns with European regulatory standards, particularly the UCITS directive, which promotes liquidity and limits excessive exposure to individual assets. These adjustments ensure the index remains investable for funds that track it. Without such limits, dominant firms—especially in industries like luxury goods or energy—could overshadow smaller constituents.

Rebalancing Frequency

The CAC 40 undergoes a quarterly rebalancing process, during which the Conseil Scientifique evaluates whether the current constituents still meet the selection criteria. Companies that no longer rank among the most liquid or highest free-float market capitalization stocks may be removed, while stronger candidates are added.

Rebalancing decisions are based on data from the preceding 12 months to avoid short-term volatility influencing changes. When a company is removed, its replacement is selected from a pool of eligible firms with sustained market activity. These adjustments can impact stock prices, as inclusion often leads to increased demand from index-tracking funds, while removal may result in selling pressure.

Where It’s Quoted or Traded

The CAC 40 is quoted and traded on Euronext Paris, the primary stock exchange in France. It operates during standard market hours from 9:00 AM to 5:30 PM Central European Time (CET). Trading occurs through a fully electronic system, ensuring efficient price discovery and liquidity.

Investors can access the index through exchange-traded funds (ETFs), futures contracts, and options. The CAC 40 is widely referenced in global financial markets and included in international benchmarks. It is available on major financial data platforms, where real-time updates help investors track performance. Its movements are often analyzed alongside other major indices, such as the FTSE 100 and DAX, to gauge broader regional trends.