How stock indices work

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Benzinga  5 hrs ago  Comment 
September SP500 is trading at 2173.75, up 0.25. September Nasdaq 100 is trading at 4780.00, down 2.25 September Russell 2000 is trading at 1240.00, up 0.60. September Dow Industrial futures are trading at 18446, down 2. Stock index...
Yahoo  6 hrs ago  Comment 
U.S. stock index futures indicated a higher open Friday morning as traders anticipated Fed Chair Janet Yellen's speech at Jackson Hole.
Benzinga  Aug 25  Comment 
September SP500 is trading at 2171.00, down 4.00. September Nasdaq 100 is trading at 4778.00, down 8.25 September Russell 2000 is trading at 1237.70, up 1.90. September Dow Industrial futures are trading at 18424, down 48. Stock index...
Yahoo  Aug 25  Comment 
U.S. stock index futures indicated a lower open Thursday morning as traders eyed data and anticipated Friday's speech from Janet Yellen.
Benzinga  Aug 24  Comment 
September SP500 is trading at 2177.00, down 8.25. September Nasdaq 100 is trading at 4793.00, down 24.00 September Russell 2000 is trading at 1238.20, down 8.80. September Dow Industrial futures are trading at 18477, down 51. Stock...
Benzinga  Aug 24  Comment 
Motley Fool  Aug 23  Comment 
Investors reacted to surging new home sales and key earnings reports from Best Buy and J.M. Smucker on Tuesday.
Benzinga  Aug 23  Comment 
September SP500 is trading at 2187.00 up 5.50. September Nasdaq 100 is trading at 4823.25, up 11.50 September Russell 2000 is trading at 1250.10, up 12.00. September Dow Industrial futures are trading at 18540, up 21. Stock index...
Motley Fool  Aug 22  Comment 
Why Medivation and Marathon Oil shares made big moves as the indexes barely budged on Monday.
Benzinga  Aug 22  Comment 
September SP500 is trading at 2181.75, up 0.75. September Nasdaq 100 is trading at 4809.50, up 2.50 September Russell 2000 is trading at 1235.50, up 0.80. September Dow Industrial futures are trading at 18376, down 3. Stock index...
Yahoo  Aug 22  Comment 
U.S. stock index futures pointed to a flat open Monday, as investors remain on edge ahead of the Fed's Jackson Hole meeting later this week, while keeping an eye on oil.




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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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