CAC 40 Index

The CAC 40 (Cotation Assistée en Continu) is the principal equity index of France, composed of 40 large-capitalization stocks traded on Euronext Paris. It is the primary barometer of the French economy and is a key component of the broader European equity market.

History and construction

The CAC 40 was created in 1987 as the successor to the former Paris Stock Exchange’s main index. The name reflects its design: “Cotation Assistée en Continu” refers to continuous assisted quotation, a modernization from the old open-outcry floor system. The index was designed to be the French analogue of Germany’s DAX, Italy’s FTSE-MIB, and Spain’s IBEX 35—a standardized gauge of large-cap national champions.

The index is constructed as a free-float weighted market capitalization index: companies with larger market caps have larger weight. Weighting is adjusted for free float—the portion of shares available to the public, excluding government blocks or founders’ stakes. This differs from simple market-cap indices, which can be distorted by single large shareholders.

Major constituents

The CAC 40 includes France’s largest corporations across sectors: banking (BNP Paribas, Crédit Agricole, Société Générale), luxury goods (LVMH, Hermès, Kering), energy (TotalEnergies), pharmaceuticals (Sanofi), industrial goods (Alstom, Schneider Electric), and retail (Carrefour, Casino).

The index is heavily weighted toward financial services and luxury: roughly 35–40% of weight combined. This makes the CAC 40 sensitive to European economic conditions (banking sector) and consumer discretionary demand (luxury goods). European banks are regulated under Basel III and the Single Supervisory Mechanism (SSM), tying CAC 40 performance to ECB policy. Luxury goods companies are sensitive to global consumption cycles and currency fluctuations (euro strength/weakness).

Trading and indexes derived from CAC 40

The CAC 40 trades continuously on Euronext Paris from 9:00 AM to 5:30 PM Central European Time. A pre-market session runs 7:15–9:00 AM. Options and futures contracts on the CAC 40 are liquid and widely used for hedging and speculation.

Derived indices include:

• CAC Large 60: The CAC 40 plus 20 mid-cap stocks
• CAC Mid 60: Mid-cap stocks (market cap €1–15 billion)
• CAC Small: Smaller-cap stocks
• CAC All-Tradable: All stocks meeting liquidity thresholds

The CAC 40 itself is also a component of the STOXX Europe 600, a broader pan-European index including large, mid, and small-cap companies across the EU.

Correlation and role in European equity allocation

The CAC 40 is closely correlated with the DAX (Germany), FTSE 100 (UK), and broader European equity performance. However, it exhibits some idiosyncratic sensitivity: to French fiscal policy, labor market conditions, and the fortunes of luxury goods and banking sectors.

In global equity portfolios, the CAC 40 typically represents 7–10% of European equity exposure and 2–4% of global equity allocation, reflecting France’s share of European GDP and market cap. Exposure to France can be gained through:

• Direct stock purchase on Euronext
• CAC 40 ETFs (both accumulating and distributing)
• CAC 40 futures and options
• European equity funds with overweight France

Currency risk and hedging

The CAC 40 is priced in euros. An investor outside the Eurozone (e.g., U.S.-based, UK-based, Swiss) faces currency risk. If the euro weakens against the investor’s home currency, CAC 40 gains are reduced when converted back. Conversely, euro strength amplifies returns.

Some CAC 40 ETFs offer both unhedged (currency exposure) and euro-hedged versions (currency risk removed) for non-euro investors. The choice depends on the investor’s currency view and portfolio strategy.

Dividend yield and income

The CAC 40 has historically yielded 2.5–4% in dividends, competitive with other European blue-chip indices. French tax law allows significant tax deductions for corporations that pay dividends, incentivizing high payouts. However, non-resident investors face withholding tax on French dividends (typically 15% reduced under tax treaties), affecting net yield.

Economic sensitivity

The CAC 40 is sensitive to:

• ECB monetary policy: Lower rates boost equity valuations and financial sector NII (net interest income). Higher rates compress multiples.
• Eurozone growth: France is the second-largest Eurozone economy; recessions reduce corporate earnings.
• Global risk appetite: During risk-off periods, Eurozone equities underperform as investors flee to safer markets.
• Luxury consumption: A meaningful chunk of weight depends on global high-end consumer spending.
• Fiscal policy: French government spending and taxation affect both the economy and specific sectors (defense, energy).

The index declined 30–40% in 2008 (global financial crisis), 10–15% in the 2011–2012 Eurozone debt crisis, and 30% in early 2020 (COVID-19), but recovered in each case. Long-term annualized returns are ~8–10% (including dividends) since inception, broadly in line with major European benchmarks.