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What do you mean by a stock index? How is it calculated? |
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Answer» Stock index refers to the index used to capture the movement of the stock market. It is a barometer which measures overall market trend through a set of stocks which are representatives of the market An ideal index must represent changes in the prices of securities and also show the price movement of different classes of shares. Most of the stock market use the following 3 methods of calculating index. a. Price weighted Index: An index reflecting the sum of the prices of the sample share in a certain year/month/week/day with reference to a base year. b. Equal Weighted Index: An index reflecting the simple arithmetic average of the price relatives of a sample of shares in a certain period with reference to a base year, c. Value Weighted Index: It is an index reflecting the aggregate market capitalization of the sample shares in certain period in relation to the base year. |
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