Series 79: Market Indexes

Market Indexes

A market index is a composite index intended to measure changes in the market price for a group of securities, for securities traded on a specific stock market, or for an industry segment. If you can imagine a market, industry sector, or type of security, chances are someone has developed an index to track the performance of that item.

The typical market index tracks the ups and downs of a basket of securities, usually stocks, that are supposedly representative of the market or segment of interest. A broad-based index tracks many stocks and is intended to represent the performance of the overall market. Narrowly based indexes track specific industry or market sectors.

Indexes must be weighted, and there are different approaches to this process. Some indexes are price-weighted, meaning the price of the constituent stocks is the sole factor that determines the index value