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What are stock indexes?

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Anonymous

8y ago
Updated: 11/22/2021

An option based on the value of a stock index (like the S&P 500). It's not different than a typical stock option; the only difference is the underlying asset that determines the value of the option (an index price instead of a stock price).

Stock market indices play an important role in gauging the economic health and progress of a country. Oftentimes someone will say "the Stock Market is up" or "down" but that is not necessarily a meaningful statement. Understanding how Stock Market indices are calculated and their history can be very instrumental in understanding the stock market as a whole.

The Origin Of The Stock Market Index

As stock markets became more and more prevalent in industrialized countries, people began to look for a "barometer" of the stock market as a whole. The very first stock market index was the Dow Jones Transportation Average, which was created by Charles Dow in 1884. It was followed shortly thereafter by many more indexes like the Dow Jones Industrial Average which, in a very modified form, is still widely publicized and followed today.

How Indices Are Calculated

A stock market index is generally calculated by combining a weighted average of a set of particular stocks. For example, in the case of the Dow Jones Industrial Average, 30 stocks are weighted by price to get a measurement of the market as a whole. It should be noted that all indices are somewhat arbitrary and are more useful as indicators of relative and historical growth rather than a raw number. Additionally, in many indices stocks often times are added or removed due to bankruptcies or simply becoming less relevant than another stock. Most recently Kraft Foods replace AIG in the Dow Jones Industrial Average.

Popular Stock Indices

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Emmanuel Ward

Lvl 10
3y ago

What else can I help you with?

Related Questions

What type of stock indexes are there?

There are indexes that cut across industries; there are indexes that deal with one industry only. Indexes include varying numbers of stocks.


How many stock indexes are there in India?

108


Stock indexes are used to measure what?

There are many ways to measure the value of the stock market. Stock indexes are used to measure the value of a group or section of stocks. This information is then used to compare returns of a specific stock in that group.


How many indexes are there in the US stock market?

1500


What sort of financial product are Index EFTs?

Indexed EFTs are indexed electronic trading funds. Indexed EFTs are used by one in the stock market interested in trading stocks. Most EFTs track stock indexes or bond indexes.


What are the 3 major stock averages designed to tell you?

The 3 major stock indexes (or averages); The Dow Jones Industrial (DJIA), NASDAQ, and the S&P 500 are designed to create a broad average of the stock market. These indexes take the averages of major companys and put them together. It is basically a generalization of how the majority of the stock market is going...


How can one learn how to read stock index?

One can learn how to read stock indexes by studying financial news, analyzing market trends, and understanding the performance of different companies in the stock market. It is important to learn about key economic indicators and how they impact stock prices. Additionally, seeking guidance from financial experts or taking courses on investing can also help in understanding stock indexes.


Where can I receive information about stock market indexes?

Much information is available through accessing Web sites of exchanges and other organizations, such as Dow Jones and Russell Group, that have developed indexes.


What is a list of ticker symbols for stock sector indexes?

I am trying to find the sector and industry group name and corresponding ticker symbol for any given stock.


What are 3 major stock averages?

3 major stock INDEXES, not averages, Dow Jones Industrial Average (DJIA), NASDAQ, and S&P 500.


What are some of the factors that go into a stock index?

Factors that might be used in several indexes may be given different weights in each index. Many market indexes will, at times, provide the same, or similar, assessments.


What is the difference between the stock market?

The Stock Market is considered to be ALL publicly traded securities. There are many types of indexes but 2 of the more popular ones are broad based indexes and narrow based indexes. A Broad based index, such as the S&P 500 and DJIA, is composed of a group of stocks that intend to reflect the performance of the entire stock market. A narrow based index, such as Technology and Biotech, measures the performance of a particular market segment or industry group. Hope this helps! Jennifer