How Stock Indices Work

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Channel News Asia  3 hrs ago  Comment 
U.S. stock index futures were little changed on Friday, a day after the S&P posted its biggest daily percentage loss in about three months, on mounting worries about President Donald Trump's ability to legislate his pro-growth agenda.
Channel News Asia  5 hrs ago  Comment 
Channel News Asia  7 hrs ago  Comment 
U.S. stock index futures were little changed on Friday, a day after the S&P posted its biggest daily percentage loss in about three months, on mounting worries about President Donald Trump's ability to legislate his pro-growth agenda.
The Economic Times  Aug 18  Comment 
The Nikkei was last down 1.2 per cent, after falling to its lowest since May 18.
The Hindu Business Line  Aug 17  Comment 
India’s weight in the MSCI Emerging market index is expected to rise in the coming years and the equity market will attract more foreign fund inflows going ahead, says a Morgan Stanley report. Whil...
Financial Times  Aug 16  Comment 
Admiral’s move to cut its payout goes against trend on the main UK stock index
Channel News Asia  Aug 16  Comment 
U.S. stock index futures were higher on Wednesday ahead of the minutes on the Federal Reserve's July policy meeting, which will offer clues on the future path of interest rate hikes.
Clusterstock  Aug 10  Comment 
Stock indices forged ahead to make new highs before escalating political tensions between the US and North Korea spurred some mid-week selling. Business Insider CEO Henry Blodget discusses the many yellow flags that have been raised about the...
The Economic Times  Aug 10  Comment 
China CSI300 stock index futures for August fell 0.5 per cent, to 3,701, 14.95 points below the current value of the underlying index.
Mondo Visione  Aug 3  Comment 
We would like to inform you that PEGAS will harmonise and simplify the calculation of existing indices whilst adding a new Spot market index as of 05.09.2017. > Download Customer Information
TechCrunch  Aug 2  Comment 
 Snap shares fell 4% and closed at a record low on Tuesday at $13.10, but it wasn’t just because of the dreaded lockup expiration, which allowed some insiders to finally sell shares. Snap faced another devastating blow when it was revealed...




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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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