How Stock Indices Work

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Financial Times  8 hrs ago  Comment 
London’s main stock index still playing catch up over the longer term
The Economic Times  9 hrs ago  Comment 
MSCI emerging market index, a key gauge for global fund managers to benchmark their portfolios, has formed the 'death cross' pattern on charts.
Benzinga  Jan 13  Comment 
March SP500 is trading at 2268.00, up 4.50. March Nasdaq 100 is trading at 5054.00, up 20.00 March Russell 2000 is trading at 1369.6, up 10.90. March Dow Industrial futures are trading at 19784, down 19. Stock index futures are trading...
Benzinga  Jan 12  Comment 
March SP500 is trading at 2257.75, down 12.75. March Nasdaq 100 is trading at 5016.00, down 30.50 March Russell 2000 is trading at 1350.8, down 23.40. March Dow Industrial futures are trading at 19756, down 121. Stock index futures are...
Benzinga  Jan 12  Comment 
Benzinga  Jan 11  Comment 
March SP500 is trading at 2267.00, up 3.25. March Nasdaq 100 is trading at 5040.00, up 8.75 March Russell 2000 is trading at 1369.6, up 0.30. March Dow Industrial futures are trading at 19850, up 63. Stock index futures have moved up off...
Benzinga  Jan 10  Comment 
March SP500 is trading at 2270.75, up 5.75. March Nasdaq 100 is trading at 5039.50, up 17.50 March Russell 2000 is trading at 1371.4, up 16.20. March Dow Industrial futures are trading at 19872, up 44. Stock index futures have extended the...
Benzinga  Jan 9  Comment 
March SP500 is trading at 2265.25, down 6.00. March Nasdaq 100 is trading at 5023.75, up 19.75 March Russell 2000 is trading at 1357.1, down 8.0. March Dow Industrial futures are trading at 19827, down 70. Stock index futures are trading...
Benzinga  Jan 6  Comment 
March SP500 is trading at 2276.00, up 11.75. March Nasdaq 100 is trading at 5013.00, up 51.00 March Russell 2000 is trading at 1373.2, up 2.6. March Dow Industrial futures are trading at 19919, up 98. Most stock index futures have extended...
Benzinga  Jan 5  Comment 
March SP500 is trading at 2256.75, down 7.75. March Nasdaq 100 is trading at 4943.50, up 9.75 March Russell 2000 is trading at 1366.2, down 20.1. March Dow Industrial futures are trading at 19753, down 103. Most stock index futures are...




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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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