WHAT ARE STOCK INDEXES ???

CHAPTER 7
WHAT ARE STOCK INDEXES
A stock market index is a method of measuring a section of stock market. Statistical indicators are used in measurement and reporting of changes in the market value of group of stocks. By measuring the performance of a one company based on the performance of other companies in the same type of business, which will help the investors to make best investment.

Major types of stock indices:-
There stock indices may classified in many ways.
GLOBAL market index includes all types of companies irrespective of where they are domiciled or traded. The 2 best examples of such index are MSCI WORLD and S&P GLOBAL 100.
NATION market index indicates the performance of a stock exchange of a nation and reflects the economy of the country. The examples of such index are the INDIAN SUNSEX and the JAPANESE NIKKEI 225
More specialized indices comprise of tracking the performance of the certain sector of the market, the example is MORGAN STANLEY BOITECH INDEX, it comprises of 36 American companies under biotechnology industry
Other indexes may track the companies from its size, or a certain type of management etc.

Weighting
The index can be also classified under the criteria as to how is it priced
PRICE WEIGHTED INDEX also known as equal dollar weighted index, each component stock contributes only to its price when determine the overall value. The size of the company or the volume in which its trading is not taken into considerations, hence evens a slight up or down in a single company highly influences the index

CAPITALIZED WEIGHTED INDEX also known as market value weighted index, whose components are weighted according to the total market value of their outstanding shares. The impact of the component’s price change is proportional to the issues overall market value.