How do you calculate the stock market index and what does it mean by????

Question

I am really confused. What does it mean by the stock market index rose to 444.90 or something like that. I want something in details please.

Answer 1

Stock market indices are calculated from the quotes of the stocks of which they are composed. It is therefore a sort of average. If an index rose 1% to 445, then it just means that this average stock price rose one percent.

The number of stocks included and the exact way the calculation is done, is different from one index to another.

For instance: the Dow Jones is composed of 30 stocks, the 30 biggest companies in the US and the value is just the sum of the of the values of the composants, multiplied by a suitable number.

The SP 500 contains (you guessed it) 500 stocks, weighted by their size, and is therefore more representative for the economy as a whole.

Other indices take also in account the number of stocks in circulation, the amount of stocks exchanged each day, etc.

Answer 2

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Answer 3

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Answer 4

If you want the details, here is a document describing the methodology behind several NYSE indexes:

http://www.nyse.com/pdfs/index_methodology.pdf

Answer 5

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