How Stock Indices Work

RECENT NEWS
Benzinga  Jan 6  Comment 
March SP500 is trading at 2276.00, up 11.75. March Nasdaq 100 is trading at 5013.00, up 51.00 March Russell 2000 is trading at 1373.2, up 2.6. March Dow Industrial futures are trading at 19919, up 98. Most stock index futures have extended...
Benzinga  Jan 5  Comment 
March SP500 is trading at 2256.75, down 7.75. March Nasdaq 100 is trading at 4943.50, up 9.75 March Russell 2000 is trading at 1366.2, down 20.1. March Dow Industrial futures are trading at 19753, down 103. Most stock index futures are...
Benzinga  Jan 4  Comment 
March SP500 is trading at 2261.25, up 8.50. March Nasdaq 100 is trading at 4925.00, up 18.75. March Russell 2000 is trading at 1378.2, up 12.7. March Dow Industrial futures are trading at 19834, up 37. Stock index futures are trading...
Benzinga  Jan 3  Comment 
March SP500 is trading at 2243.50, up 7.75. March Nasdaq 100 is trading at 4891.00, up 27.00 March Russell 2000 is trading at 1358.3, up 1.4. March Dow Industrial futures are trading at 19730, up 10. Stock index futures are trading choppy...
newratings.com  Jan 3  Comment 
VIENNA (dpa-AFX) - Trading in the U.S. index futures suggests that Wall Street stocks will be back to momentum on Tuesday, after a long Christmas-New Year holidays. The market is expecting continued strength in ISM composite index to be released...
Forbes  Dec 30  Comment 
Though Dow 20,000 did not materialize and all three U.S. stock indices finished the last trading day of the year in negative territory, all three indices managed to post gains for the year as a whole -- something that seemed unlikely given the...
Benzinga  Dec 30  Comment 
March SP500 is trading at 2234.50, down 10.50. March Nasdaq 100 is trading at 4859.00, down 59.50 March Russell 2000 is trading at 1357.1, down 5.3. March Dow Industrial futures are trading at 19711, down 48. Stock index futures are...
Benzinga  Dec 30  Comment 
MarketWatch  Dec 30  Comment 
Pan-European stock index Stoxx 600 surges 5.7% in Dec. but ends 2016 in red
Benzinga  Dec 29  Comment 
March SP500 is trading at 2241.00, down 4.50. March Nasdaq 100 is trading at 4905.50, down 18.25. March Russell 2000 is trading at 1357.70, down 2.7. March Dow Industrial futures are trading at 19739, down 36. Stock index futures are...
Benzinga  Dec 28  Comment 
March SP500 is trading at 2253.25, down 7.75. March Nasdaq 100 is trading at 4940.00, down 21.25. March Russell 2000 is trading at 1366.40, down 8.3. March Dow Industrial futures are trading at 19849, down 27. Stock index futures have...




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A stock index is generally a portfolio of stocks, bonds or other kinds of investments which are used to represent either segments of an exchange or the whole exchange. One of the most common ways to understand a stock index is to have a look at the composition of the stocks it represents. Generally, the set of rules require the stocks to satisfy certain criteria, such that[1]:

  • All the investments in the index are subject to selection.
  • Includes calculations and rules for weighting of the index components.
  • Provides specific instructions for adjustments to maintain consistency.

How Stock Market Indexes are classified

The benchmark indices of various exchanges not only represent the stocks, but the scenario of the market as a whole. Hence, they are used to depict the overall health of the economy as well. Understanding how the index works, is a good way to begin analysis on various stocks and their importance to the economy. A good way to analyze an index is to understand the composition of the stocks it represents.

A broad based index or composite index is the one which covers almost all stocks on the exchange (or a certain majority percentage of the market capitalization on the exchange). The main purpose of the broad based index is to act as a proxy for the performance of the economic conditions of the entire market, or reveal investor sentiment towards the market.

Based on the definition of a stock index, a global index could include indices which span across exchanges and possibly countries. The Dow Jones Wilshire 5000 Total Stock Market Index spans all publicly traded index in America, excluding foreign stocks and ADRs. The Euronext 100 includes stocks from all over the European Union and the Russell Investment group have something called the Global Index.


References

<Broby, D., "Equity Index Construction", The Journal of Index Investing, Fall 2011, Vol. 2, No. 2: pp. 36-39 />

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