Business, Legal & Accounting Glossary
Stock index measures market prices of a particular basket of stocks. An index measures average change in a particular group (comprising related variables) over two different situations. Stock Indexes are used for benchmarking portfolios and determining market returns to name a few. A stock index makes use of a representative basket of stocks. This representative basket is essentially a sample of the total number of stocks present (which can be termed as the population in statistics terminology). Specialized indexes are created for measuring movements of specific sections of a market. A stock market is essentially a trading platform for stocks ( of listed companies).
Put simply an index is a type of indicator. It provides investors with a general idea about stock movement (whether most of them are going up or down). A stock index usually represents top listed companies of that stock exchange. If a stock index rises it implies stock prices of most big companies in that exchange has gone up.
Stock indexes differ in the methodology applied for weighing their stocks during averaging. For instance, an index, which is market-capitalization-weighted takes into account a company’s size factor. There exist a host of indexes worldwide. Some are mentioned below.
Stock indexes can be grouped under two broad headings; broad-market index and specialized index. While the former comprises huge liquid stocks of a nation, the latter one is either industry-specific or sector-specific.
Some stock index determinants are listed below.
Averaging can again be of three types. These are price-weighted, equal-weighted and market-capitalization-weighted.
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This glossary post was last updated: 2nd April, 2020 | 0 Views.