How stock indices work

RECENT NEWS
MarketWatch  Sep 18  Comment 
London’s benchmark stock index moves firmly higher on Thursday, as the Scots head to the polls to decide whether to stay in the U.K. or become an independent country.
Market Intelligence Center  Sep 17  Comment 
After Tuesday's trading in iShares MSCI Chile Investable Market Index (ECH) the algorithms behind MarketIntelligenceCenter.com's Artifical Intelligence Center picked out a trade that offers a 2.67% or 14.79% (for comparison purposes only), while...
New York Times  Sep 15  Comment 
The improbability of beating a market index with individual stock picks is irrefutable. If you choose to ignore that fact, you should at least understand why.
SeekingAlpha  Sep 15  Comment 
By Invest Up: Trade Summary Stay long the S&P 500 index (ETFs: SPY, IVV, and VOO). The BUY rating was assigned at 1091.06 on 10/20/2009. The BUY rating has already helped investors produce potential returns of 82.55%. Our...
Reuters  Sep 13  Comment 
Stock index provider MSCI Inc is considering changing its rules to allow shares of Alibaba Group Holding [IPO-BABA.N] and other companies that list their shares in faraway markets to be included in its widely used indexes.
Forbes  Sep 12  Comment 
The U.S. stock indices broke below key technical levels today - here's what it means for traders.
Reuters  Sep 12  Comment 
Stock index provider MSCI Inc is considering changing its rules to allow shares of Alibaba Group Holding [IPO-BABA.N] and other companies that list their shares in faraway markets to be included in its widely used indexes.
Market Intelligence Center  Sep 12  Comment 
For a hedged play on Vanguard Extended Market Index ETF (VXF) MarketIntelligenceCenter.com's patented trade-picking algorithms recommend the Dec. '14 $87.00 covered call for a net debit in the $84.71 area. That is also the break-even price for the...
SeekingAlpha  Sep 12  Comment 
By Fredrik Arnold: Weary of Wall Street Wizard Weights? Are you sick and tired of the same old dreary record-breaking numbers being reported for the DowJones30; S&P500; NASDAQ100; RUSSELL3000; BARRON400; ValueLineXYZ; etc.? Here's the cure....
Reuters  Sep 11  Comment 
U.S. stock index futures pointed to a lower open on Thursday as jobless claims unexpectedly rose in the most recent week, the latest sign the labor market continues to struggle.




RELATED WIKI ARTICLES
 
TOP CONTRIBUTORS

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 />

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