In “Portfolio Strategies for Outperforming a Benchmark” (appearing in Handbook of European Fixed Income Securities published by John Wiley & Sons in 2003), the authors, William Lloyd and Bharath K. Maniumm, set forth the following six major principles for a good bond market index:
Principle 1: Relevant to the investor.
Principle 2: Representative of the market.
Principle 3: Transparent in rules with consistent constituents.
Principle 4: Investible and replicable.
Principle 5: Based on high data quality.
Principle 6: Independent.
Explain why each of these principles is important in creating a bond market index.