How Stock Indices Work

Yahoo  Oct 2  Comment 
U.S. stock index futures indicated a higher open on Friday, with Wall Street awaiting the release of September's employment report.
MarketWatch  Oct 2  Comment 
The U.K.’s benchmark stock index ends in positive territory as disappointment over the U.S. jobs report lends support to metals and helps prop up the British-listed mining firms.
Yahoo  Oct 1  Comment 
U.S. stock index futures indicated a higher open on Thursday after the worst quarter in four years.
Yahoo  Sep 25  Comment 
U.S. stock index futures indicated a higher open on Friday as markets digested Thursday's speech from Fed Chair Janet Yellen.
The Hindu Business Line  Sep 22  Comment 
Ends at 4-month high of 53.9; suggests moderate growth
Yahoo  Sep 18  Comment 
U.S. stock index futures indicated a lower open on Friday as traders reacted to the Fed's decision to hold off rising rates.
Yahoo  Sep 17  Comment 
U.S. stock index futures held a touch lower on Thursday as traders looked to the Federal Reserve and today's interest rate decision.
The Economic Times  Sep 15  Comment 
Nikkei stock index rose 0.6 per cent as investors awaited the outcome of the BoJ's two-day policy meeting later this session, as well as BOJ Governor Haruhiko Kuroda's post-meeting speech.
Yahoo  Sep 11  Comment 
U.S. stock index futures indicated a lower open on Friday with traders cautious about next week's meeting of the U.S. Federal Reserve.
Reuters  Sep 7  Comment 
China's stocks regulator said it plans to deepen reforms and bolster supervision of the market, including looking into a stock index "circuit breaker" system that would halt trading in response to substantial drops.


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.


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

Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki