How Stock Indices Work

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Channel News Asia  5 hrs ago  Comment 
U.S. stock index futures rose on Monday ahead of the start of earnings season, pointing to an easing of last week's selloff after officials of the Trump administration stressed the trade dispute with China could be resolved through talks.
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Rouble suffers biggest daily fall for over three years and shares in Oleg Deripaska’s firms slump The Trump administration’s new sanctions on Russian oligarchs and top government officials began to bite on Monday as the rouble suffered its...
Channel News Asia  Apr 3  Comment 
U.S. stock index futures signaled a higher opening for Wall Street on Tuesday, supported by slight gains in beaten-down technology stocks, but Amazon remained on track to open lower after dragging down the markets on Monday.
Channel News Asia  Apr 2  Comment 
REUTERS: U.S. stock index futures fell on the first trading day of the new quarter as China's decision to raise import tariffs on U.S. products rekindled global trade war fears and technology stocks showed little signs of recovery. Nasdaq futures...
Wall Street Journal  Apr 1  Comment 
Iraq’s stock market is defying the violent swings that have struck the global markets this year. The country’s main stock index is up more than 10% this year, as investors bet on post-Islamic State economic recovery.
The Economic Times  Mar 30  Comment 
The smaller Shenzhen index ended up 1.29 percent and the start-up board ChiNext Composite index was higher by 3.16 percent.
Mondo Visione  Mar 29  Comment 
Following the recent changes in the shareholders breakdown of the company «KORRES NATURAL PRODUCTS S.A.», a number of changes will be implemented in the composition of ATHEX indices, the share of the company participate, in line with Index...
The Economic Times  Mar 28  Comment 
Leading players from the sector have beaten benchmark stock indices over the past 5 years.
Channel News Asia  Mar 27  Comment 
NEW YORK: Wall Street was back on shaky ground on Tuesday (Mar 27), with huge declines in technology shares leaving major stock indices sharply lower. The tech-rich Nasdaq Composite Index dropped 211.74 points (2.93 per cent) to 7,008.81. The...
Channel News Asia  Mar 27  Comment 
U.S. stock index futures rose on Tuesday, adding to Wall Street's sharp rebound on Monday, as fears of a trade war between the United States and China eased.




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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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