How Stock Indices Work

RECENT NEWS
Benzinga  6 hrs ago  Comment 
December SP500 is trading at 2121.50, down 0.75. December Nasdaq 100 is trading at 4746.75, up 23.00 December Russell 2000 is trading at 1207.90, down 0.60. December Dow Industrial futures are trading at 17986, down 23. Stock index...
newratings.com  7 hrs ago  Comment 
WASHINGTON (dpa-AFX) - Mortgage applications in the U.S. rose 4.2 percent last week. According to data from the Mortgage Bankers Association, market composite index, a measure of mortgage loan application volume, increase 4.2 percent on...
Benzinga  Sep 13  Comment 
December SP500 is trading at 2122.00, down 30.00. December Nasdaq 100 is trading at 4719.00, down 44.75 December Russell 2000 is trading at 1211.30, down 20.90. December Dow Industrial futures are trading at 18021, down 224. Stock index...
Benzinga  Sep 12  Comment 
December SP500 is trading at 2146.25, up 30.25. December Nasdaq 100 is trading at 4749.00, up 81.25 December Russell 2000 is trading at 1227.20, up 17.10. December Dow Industrial futures are trading at 181967, up 229. Stock index...
Yahoo  Sep 12  Comment 
U.S. stock index futures pointed to a sharply lower open on Monday, as talk of an interest rate hike by the Fed coming as soon as this month rattled investors.
The Economic Times  Sep 12  Comment 
The emerging market index was up about 20-25 per cent from February’s lows in dollar terms and that Monday’s correction does not mean a trend reversal.
Benzinga  Sep 9  Comment 
December SP500 is trading at 2130.25, down 40.25. December Nasdaq 100 is trading at 4697.50, down 95.00 December Russell 2000 is trading at 1218.80, down 32.70. December Dow Industrial futures are trading at 18080, down 301. Stock index...
The Economic Times  Sep 9  Comment 
Strong liquidity conditions amid lowered rate hike expectation by Fed and better macro-economic position have seen stock indices gain over 25% since March.
Benzinga  Sep 8  Comment 
September SP500 is trading at 2180.25, down 4.00. September Nasdaq 100 is trading at 4807.00, down 21.75 September Russell 2000 is trading at 1257.50, down 2.90. September Dow Industrial futures are trading at 18476, down 38. Stock...
Yahoo  Sep 8  Comment 
U.S. stock index futures indicated a higher open Thursday morning as traders eyed the latest monetary policy meeting of the ECB.




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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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