Market value-weighted index
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A Market value-weighted index is an index whose components are weighted according to the total market value of their outstanding shares. Also called a capitalization-weighted index. The impact of a componenet's price change is proportional to the issue's overall market value, which is the share price times the number of shares outstanding. For example, the AMEX Composite Index (XAX) has more than 800 component stocks. The weighting of each stock constantly shifts with changes in the stock's price and the number of shares outstanding. The index fluctuates in line with the price move of the stocks. Another example of a market value-weighted index is the Hang Seng Index.John Downes & Jordan Elliot Goodman, Finance and Investment Terms, Barrons Financial Guides, 2003
Other Types of Indices
An index may also be classified according to the method used to determine its price. In a Price-weighted index such as theDow Jones Industrial Average, the price of each component stock is the only consideration when determining the value of the index. Thus, price movement of even a single security will heavily influence the value of the index even though the dollar shift is less significant in a relatively highly valued issue, and moreover ignoring the relative size of the company as a whole. In a market-share weighted index, price is weighted relative to the number of shares, rather than their total value.Traditionally, market value-weighted or market share-weighted indices all had a full weighting i.e. all outstanding shares where included. Recently, many of them have changed to a float-adjusted weighting which helps indexing.
Some Market Value-Weighted Indices
- NASDAQ Composite Index
- NASDAQ 100 Index
- NYSE Composite Index
- Russell Indexes
- S&P 500 Index
- Standard & Poor's 100 Index (OEX)
- Ibex-35 Index - index comprising the 35 most liquid Spanish stocks traded in the continuous market, and is Bolsa de Madrid's benchmark.
- Indice Mexico (INMEX) - index of 20 to 25 of the Bolsa Mexicana de Valores (BMV) most highly marketable issuers with a minimum market value of $100 million and is revised every six months.
Notes
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