Stock market indices
A stock market index is a method of measuring a section of the stock market. Many indices are cited by news or financial services firms and are used to benchmark the performance of portfolios such as mutual funds.
Stock market indices may be classed in many ways. A 'world' or 'global' stock market index includes (typically large) companies without regard for where they are domiciled or traded. Two examples are MSCI World and S&P Global 100.
In 1906 the Standard Statistics Co. was formed, and in 1918 it began publishing the first index of stock values based on each stock's performance weighted by its capitalization, or market value. This technique is now recognized as giving the best indication of the overall market, and it is almost universally used in establishing market benchmarks.Stocks for the Long Run by Jeremy Siegel
A national index represents the performance of the stock market of a given nation—and by proxy, reflects investor sentiment on the state of its economy. The most regularly quoted market indices are national indices composed of the stocks of large companies listed on a nation's largest stock exchanges, such as the American S&P 500, the Japanese Nikkei 225, and the British FTSE 100.
The concept may be extended well beyond an exchange. The Dow Jones Total Stock Market Index, as its name implies, represents the stocks of nearly every publicly traded company in the United States, including all U.S. stocks traded on the New York Stock Exchange (but not ADRs) and most traded on the NASDAQ and American Stock Exchange. Russell Investment Group added to the family of indices by launching the Russell Global Index.
More specialised indices exist tracking the performance of specific sectors of the market. The Morgan Stanley Biotech Index, for example, consists of 36 American firms in the biotechnology industry. Other indices may track companies of a certain size, a certain type of management, or even more specialized criteria — one index published by Linux Weekly News tracks stocks of companies that sell products and services based on the Linux operating environment.
At the end of 2006, the market value of the 6,744 stocks was $18 trillion. … The top 500 firms, which closely mirror the S&P 500 Index, constitute 74.6 percent of the market value of all stocks. The top 1,000 firms in market value, which are virtually identical to the Russell 1000 and published by Russell Investment Group, comprise 85.4 percent of the total value of equities. The Russell 2000 contains the next 2,000 largest companies, which adds additional 11.7 percent to the market value of the total index. The Russell 3000, the sum of the Russell 1000 and Russell 2000 indexes, comprises 97.1 percent of all US stocks. The remaining 3,744 stocks constitute 2.9 percent of the value.Stocks for the Long Run by Jeremy Siegel
Index as a gauge of the equities market
As a barometer of the times, the Dow Average has the great strength of continuity. Dow Jones Industrials show the sweep of the century, reflecting not only the market but economic and social history. As of December 31, 2008, The Dow® represented 27% of the float-adjusted market capitalization of the Dow Jones U.S. TSM Index, which provides near complete coverage of the U.S. stock market. Read more »
The S&P 500® has been widely regarded as the best single gauge of the large cap U.S. equities market since the index was first published in 1957. The index has over US$ 3.5 trillion benchmarked, with index assets comprising approximately US$ 915 billion of this total. The index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities. Read more »
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market.
Today the NASDAQ Composite includes over 3,000 companies, more than most other stock market indexes. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indexes.
The FTSE 100 Index is a share index of the 100 most highly capitalised UK companies listed on the London Stock Exchange. Read more »
Nikkei 225 is a stock market index for the Tokyo Stock Exchange (TSE). Currently, the Nikkei is the most widely quoted average of Japanese equities, similar to the Dow Jones Industrial Average. Read more »