How stock indices work

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Benzinga  4 hrs ago  Comment 
March SP500 is trading at 2342.00, down 3.50 March Nasdaq 100 is trading at 5309.75, up 9.25. March Russell 2000 is trading at 1395.10, down 3.90 March Dow Industrial futures are trading at 20541, down 53. Stock index futures have moved...
Insurance Journal  9 hrs ago  Comment 
Global insurance rate decreases moderated on average for the fourth consecutive quarter, down 3.1 percent (compared to the previous quarter’s decrease of 3.2 percent), according to Marsh’s Global Insurance Market Index – Q4 2016. * “The...
The Economic Times  Feb 17  Comment 
Emerging markets have lost some sheen since his victory, with MSCI EM index up just 4.4% compared to the MSCI Developed Market Index's rise of 8.4%.
Benzinga  Feb 16  Comment 
After posting eight consecutive weeks of gains, the Viridian Cannabis Stock Index, which groups a majority of the most relevant securities in the marijuana space, experienced a reversal last week. For the five days comprised between February 6...
Benzinga  Feb 16  Comment 
March SP500 is trading at 2341.25, down 9.25. March Nasdaq 100 is trading at 5297.75, down 12.50. March Russell 2000 is trading at 1392.60, down 12.80 March Dow Industrial futures are trading at 20570, down 53. Stock index futures are...
Benzinga  Feb 15  Comment 
March SP500 is trading at 2345.00, up 8.00. March Nasdaq 100 is trading at 5293.50, up 17.50. March Russell 2000 is trading at 1402.10, up 3.60 March Dow Industrial futures are trading at 20576, up 94. Stock index futures are trading...
Benzinga  Feb 14  Comment 
March SP500 is trading at 2332.75, up 6.50. March Nasdaq 100 is trading at 5268.75, up 9.50. March Russell 2000 is trading at 1394.50, up 2.20 March Dow Industrial futures are trading at 20437, up 54. Stock index futures are trading near...
Benzinga  Feb 13  Comment 
March SP500 is trading at 2323.00, up 10.25. March Nasdaq 100 is trading at 5248.75, up 22.00. March Russell 2000 is trading at 1397.40, up 9.10 March Dow Industrial futures are trading at 20327, up 104. Stock index futures are trading...
Benzinga  Feb 12  Comment 
Cannabis stocks had another great week, with the Viridian Cannabis Stock Index up for the eighth consecutive week. For the seven days ended February 3, the index gained 1.8 percent. While this surge represented a slowdown in relation to previous...
Benzinga  Feb 10  Comment 
March SP500 is trading at 2310.00, up 5.75. March Nasdaq 100 is trading at 5223.25, up 11.00. March Russell 2000 is trading at 1383.70, up 6.70 March Dow Industrial futures are trading at 20195, up 59. Stock index futures are trading...




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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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