how does a stock index work?

Answer 1

It depends upon how the index is constructed but they are all similar.

The first stock index, the Dow Average, was simply to add up the stocks selected by Charles Dow, divide by the number of companies and as the price changes the index changes.

This gets complicated by the fact that companies go out of existence or are swapped out. If a swapped out company were selling for 60 and the new company for 30 then you need to first multiply the new stock by 2 every day so the index value isn't affected by the swap. You need the new company to have the same value in the average as the old company.

This is the simple part. Being people we cannot seem to keep simple, simple enough.

The S&P 500 and related indices are weighted averages so that a company like GM carries more weight than a very small firm. So, not only do you need to multiply to keep swaps in line, you also have to keep the weighting so that big firms get more credit than small firms.

But, it gets even more complicated. Except for the Dow Averages which try for stability, the others are moderately or strongly unstable.

Standard and Poors, Russell and others sell their index values and so have a customer base, so they try to please them rather than just be an objective measure. So S&P, for example, monkeys with the mix to make customers happier. A few years ago they removed foreign stocks listed in NY to turn the S&P into an American index, which it previously wasn't. This makes values from prior to the switch non-comparable to the ones after the switch. They also tend to remove embarrassing members like Enron. Further, they reengineered their weightings recently because there were shortages of certain stocks, like Wal-Mart. Dropping Wal-Mart's weight forced index funds to sell their Wal-Mart shares dropping Wal-Mart's price but making it more available to the public.

To complexify (is that a word) matters more, NASDAQ restructures its indices quarterly. In concept, it should be the largest 100 NASDAQ stocks, in practice, it overweights overvalued stocks and so tends to be the 100 most overvalued NASDAQ stocks.

At its core however is the change in the values of the representative companies.

Answer 2

both index r as borometer 4 economy

all stock divided in 22 sector all sector given % as per importance in eco. GDP, sector repsended by stk, these stk again given diff % so 50 stk of 22 sector in diff % form a NIFTY
same for SENSEX

more onmy blog

Answer 3

Stock exchange depends on Nifty and Sensex.Nifty means it deals with the top 50 companies and Sensex deals with top 30 companies.The fluctuation of these companies sets the Nifty and sensex.

Answer 4

overall stock performance of blue chip stocks

Answer 5

Hi, i recommand you a good and basic tutorial for investing. it covers all Issues related to your Investing and everything around it.

http://www.tutorialforyou.net/investing/

wish it will help you.

Answer 6

http://s15.bitefight.es/c.php?uid=65247