Index

Definition

An index is a statistical measure that tracks changes in the economy or financial markets, often representing the performance of a group of assets. It serves as a benchmark for evaluating investment returns and economic health.

5 Must Know Facts For Your Next Test

1. Common indices include the S&P 500, Dow Jones Industrial Average, and NASDAQ Composite.
2. Indices can be price-weighted, market-cap weighted, or equal-weighted.
3. They are used to gauge overall market performance and economic trends.
4. Indices provide a basis for index funds and ETFs, which mirror their performance.
5. Changes in an index can influence investor sentiment and economic policy decisions.

Review Questions

• What are three common types of indices used in finance?
• How do price-weighted indices differ from market-cap weighted indices?
• Why are indices important for investors and policymakers?

Related terms

Benchmark: A standard against which the performance of a security or fund can be measured.

Exchange-Traded Fund (ETF): A type of investment fund that tracks an index, commodity, or basket of assets like an index fund but trades like a stock on an exchange.

Market Capitalization: The total value of a company's outstanding shares of stock, calculated by multiplying the share price by the number of shares.