How Stock Indices Work

RECENT NEWS
Benzinga  3 hrs ago  Comment 
December SP500 is trading at 2157.25, up 4.50 December Nasdaq 100 is trading at 4864.50, up 3.75. December Russell 2000 is trading at 1246.30, up 2.30 December Dow Industrial futures are trading at 18202, up 63. Stock index futures are...
Benzinga  6 hrs ago  Comment 
newratings.com  5 hrs ago  Comment 
WASHINGTON (dpa-AFX) - Mortgage applications in the U.S. dropped 0.7 percent from last week. According to data from the Mortgage Bankers Association, market composite index, a measure of mortgage loan application volume, declined 0.7 percent on...
Benzinga  Sep 27  Comment 
December SP500 is trading at 2150.25, up 10.25 December Nasdaq 100 is trading at 4856.50, up 41.75. December Russell 2000 is trading at 1241.50, up 4.70 December Dow Industrial futures are trading at 18125, up 111. Stock index futures...
Benzinga  Sep 26  Comment 
December SP500 is trading at 2139.50, down 18.50 December Nasdaq 100 is trading at 4815.55, down 41.00. December Russell 2000 is trading at 1241.20, down 9.10. December Dow Industrial futures are trading at 18017, down 173. Stock index...
Benzinga  Sep 23  Comment 
December SP500 is trading at 2159.25, down 9.00 December Nasdaq 100 is trading at 4859.00, down 27.25. December Russell 2000 is trading at 1253.40, down 6.00. December Dow Industrial futures are trading at 18200, down 99. Stock index...
Yahoo  Sep 23  Comment 
U.S. stock index futures pointed to a lower open as traders eyed the release of data and comments from Fed speakers.
Benzinga  Sep 22  Comment 
December SP500 is trading at 2167.25, up 11.00 December Nasdaq 100 is trading at 4881.00, up 31.00. December Russell 2000 is trading at 1253.30, up 11.10. December Dow Industrial futures are trading at 18329, up 111. Stock index futures...
The Hindu Business Line  Sep 22  Comment 
Banks’ loan books not showing significant traction
Benzinga  Sep 21  Comment 
December SP500 is trading at 2145.25, up 14.25. December Nasdaq 100 is trading at 4831.00, up 32.50. December Russell 2000 is trading at 1233.10, up 10.20. December Dow Industrial futures are trading at 18131, up 84. Stock index futures...
newratings.com  Sep 21  Comment 
WASHINGTON (dpa-AFX) - Mortgage applications in the U.S. dropped 7.3 percent last week. According to data from the Mortgage Bankers Association, market composite index, a measure of mortgage loan application volume, decreased 7.3 percent on...




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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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