The CAC 40 is the best-known stock market index in France. As the showcase for the Paris financial market, it reflects the economic health of the 40 largest French companies listed on the stock exchange. Closely watched by investors, it’s a key benchmark for understanding market trends.
Whether you’re new to the stock market or an experienced investor using trading platforms, mastering how the CAC 40 works is essential for making better decisions.
In this guide, we’ll explore what’s behind this iconic index and why it plays a central role in the economy and in investing.
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Table of Contents
What Exactly Is the CAC 40?
The CAC 40 (which stands for Cotation Assistée en Continu, or “Continuous Assisted Quotation”) is the benchmark stock market index for the Paris Stock Exchange, managed by Euronext. Created on December 31, 1987, with a base value of 1,000 points, it began trading on June 15, 1988.
This index includes the 40 largest French companies by market capitalization, selected from the top 100 companies listed on Euronext Paris. It represents approximately 80% of the total market capitalization of the French market.
Meaning of the CAC 40 Acronym
- C: Cotation (Quotation)
- A: Assistée (Assisted)
- C: en Continu (Continuous)
- 40: The number of companies in the index
Composition and Selection Criteria for the CAC 40
The composition of the CAC 40 is reviewed quarterly based on strict criteria set by the Euronext committee.
Main Selection Criteria:
- Free-float market capitalization: Market capitalization is the total value of a company on the stock market (share price × number of outstanding shares). Free-float capitalization only includes shares that are actually available for buying and selling on the market (excluding those held by the state, founders, or large shareholders who don’t trade them).
- Daily trading volume: This is the number of shares bought and sold each day.
- Representative economic sector: The company must belong to an economic sector that reflects its importance in France (banking, luxury goods, energy, telecommunications, etc.).
- Liquidity of securities: Liquidity refers to how easily a stock can be bought or sold without its price changing too much.
Represented Sectors
The companies in the CAC 40 cover all major economic sectors:
- Financial Services: BNP Paribas, Société Générale, Crédit Agricole
- Luxury and Cosmetics: LVMH, L’Oréal, Hermès
- Telecommunications: Orange
- Energy: TotalEnergies, Engie
- Industry: Airbus, Safran, Michelin
- Retail: Carrefour
- Services: Capgemini, Publicis
Quarterly Composition Review
The expert committee reviews the composition four times a year (March, June, September, December). A company can be added to the CAC 40 if:
- Its free-float capitalization is among the top 35.
- Its trading volumes are sufficient.
- It meets the liquidity criteria.
How the CAC 40 Index Value Is Calculated
The Paris index uses a free-float market capitalization-weighted* calculation.
- Each company in the CAC 40 does not have the same weight in the index.
- The higher a company’s free-float capitalization, the more it influences the index’s value.
- Example: LVMH (with its enormous value) weighs much more in the calculation than Sodexo.
This prevents a small company from causing too much movement in the index when its real economic weight is low.
*Weighting: Weighting assigns each CAC 40 company a weight proportional to its size, so the index accurately reflects the balance of the economy.
Weighted Calculation Method for the CAC 40
Index value = (Sum of floating capitalizations / Divisor) × 1000
- Sum of free-float capitalizations: This is the sum of the stock market values of all CAC 40 companies, but only using their shares available to the public.
- Divisor: This is a technical number used to prevent the index from jumping with every special operation (merger, spin-off, capital increase, etc.). It helps maintain the historical continuity of the index.
- × 1000: The index was set at 1000 points upon its creation in 1987, and this factor maintains that base.
Important Weighting Rules
The CAC 40 calculation follows strict rules to keep the index balanced. No single company can represent more than 15% of the total weight, which prevents one company from excessively influencing the index’s fluctuations. This cap protects investors from over-concentration.
Only shares actually available on the market, known as free-float capitalization, are included in the calculation. This method excludes holdings by founders or the state, more accurately reflecting trading reality. The index is updated every 15 seconds during trading hours, providing real-time valuation for investors.
Difference Between CAC 40 and CAC 40 GR
Two versions of the CAC 40 exist to meet different investor needs. The traditional “price” CAC 40 only tracks the change in stock prices without including dividends. The CAC 40 GR (Gross Return), on the other hand, includes the automatic reinvestment of dividends, providing a more complete picture of the companies’ real long-term profitability.
Advantages of Investing in the CAC 40
Investing in the CAC 40 provides automatic diversification across the 40 largest French companies, eliminating the risk of over-concentration in a single company. This index-based approach benefits from high liquidity, which makes buying and selling operations much easier, even for large amounts.
The complete transparency of the index’s composition is a major advantage, as every investor knows exactly which companies are held in their portfolio. Management fees are generally lower compared to active management, helping to maximize net profitability. Finally, investing in the CAC 40 offers full exposure to the French economy as a whole, reflecting its strengths and sector dynamics.
Discover how to invest in the CAC 40 through our guide
Remarkable Historical Performance of the CAC 40
Since its creation in 1988, the CAC 40 has gone through contrasting economic cycles that perfectly illustrate the resilience and dynamism of the French market. The period from 1988 to 2000 was marked by a spectacular increase of over 400%, driven by the internet bubble euphoria and the emergence of new technology sectors.
After the severe correction in the early 2000s following the bursting of the tech bubble, the index found remarkable upward momentum between 2003 and 2007 with a 180% gain. This recovery period demonstrated the ability of French companies to rebound from sectoral crises.
The following decade, despite the 2008-2009 global financial crisis, saw the CAC 40 record an impressive 200% performance between 2009 and 2021, benefiting from accommodative monetary policies and the modernization of the French economy. Major corrections like the 70% drop from 2000 to 2003, the 55% fall during the 2008-2009 financial crisis, or the 40% correction during the COVID-19 crisis in 2020 (which quickly recovered) show the inherent volatility of equity markets.
The CAC 40 remains the essential benchmark for any investor interested in the French market. Its diversified composition and liquidity make it a privileged tool for both passive and active trading.
Whether you use manual strategies or trading robots on MT4, MT5, or ProRealTime, a deep understanding of this index will significantly optimize your investment results.
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