How Stock Indices Work

RECENT NEWS
Benzinga  Dec 9  Comment 
March SP500 is trading at 2248.50, up 4.25 March Nasdaq 100 is trading at 4889.00, up 26.75 March Russell 2000 is trading at 1384.5, down 2.4. March Dow Industrial futures are trading at 19615, up 51. Stock index futures are trading...
Benzinga  Dec 8  Comment 
March SP500 is trading at 2237.25, up 5.75 March Nasdaq 100 is trading at 4856.50, up 16.00 March Russell 2000 is trading at 1375.8, up 16.5. March Dow Industrial futures are trading at 19520, up 67. Stock index futures are trading just...
Benzinga  Dec 7  Comment 
December SP500 is trading at 2224.00, up 13.75 December Nasdaq 100 is trading at 4817.00, up 30.00 December Russell 2000 is trading at 1360.5, up 11.9. December Dow Industrial futures are trading at 19392, up 159. Stock index futures...
Benzinga  Dec 6  Comment 
December SP500 is trading at 2207.00, up 2.75 December Nasdaq 100 is trading at 4773.75, down 6.75 December Russell 2000 is trading at 1346.2, up 7.1. December Dow Industrial futures are trading at 19213, up 3. Stock index futures are...
Financial Times  Dec 6  Comment 
London stock index’s rise limited as Trump Trade sends Wall Street to record highs
Benzinga  Dec 5  Comment 
December SP500 is trading at 2202.50, up 10.50 December Nasdaq 100 is trading at 4770.50, up 32.00 December Russell 2000 is trading at 1331.7, up 18.3. December Dow Industrial futures are trading at 19228, up 70. Stock index futures are...
Benzinga  Dec 2  Comment 
December SP500 is trading at 2188.25, down 3.75 December Nasdaq 100 is trading at 4734.75, down 2.25 December Russell 2000 is trading at 1312.4, down 3.5. December Dow Industrial futures are trading at 19149, down 48. Stock index...
Benzinga  Dec 1  Comment 
December SP500 is trading at 2196.25, down 2.50 December Nasdaq 100 is trading at 4762.00, down 54.00 December Russell 2000 is trading at 1322.9, up 0.60. December Dow Industrial futures are trading at 19195, up 63 Stock index futures...
Benzinga  Nov 30  Comment 
December SP500 is trading at 2200.00, down 3.75 December Nasdaq 100 is trading at 4815.00, down 60.00 December Russell 2000 is trading at 1321.00, down 8.10. December Dow Industrial futures are trading at 19139 up 23 Stock index futures...
Benzinga  Nov 29  Comment 
The recent movements in the Stock Indices’ markets have caused many traders to want to jump in and trade. Typical thinking is often, since the market is going up, shouldn’t the cheapest binary be bought? What about spreads? Isn’t there more...




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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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