How stock indices work

The Economic Times  Nov 18  Comment 
South Korean officials will hold talks with MSCI to press for the inclusion of their country's stock markets in the equity index compiler's advanced market index.
Yahoo  Nov 17  Comment 
World markets are higher this morning following Wall Street's best day in three weeks, and stock index futures point to more gains at the U.S. open.
Reuters  Nov 15  Comment 
U.S. stock index futures opened lower on Sunday in the wake of Friday's coordinated attacks in Paris that left more than 130 dead.
Yahoo  Nov 12  Comment 
U.S. stock index futures indicated a lower open as traders digested the release of jobs data.
Yahoo  Nov 6  Comment 
U.S. stock index futures pointed to a lower open Friday as investors digested the October jobs report.
Yahoo  Nov 5  Comment 
U.S. stock index futures indicated a higher open on Thursday as traders looked to Friday's key employment report.
Yahoo  Nov 4  Comment 
U.S. stock index futures pointed to a higher open Wednesday, ahead of the bulk of the day's comments from Fed policymakers and economic data.
The Economic Times  Nov 3  Comment 
The S&P 500 stock index has rallied nearly 13 percent from its Aug. 25 low, while the small-cap Russell 2000 has advanced just 7.5 percent in that time.


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