What is an Index?
In finance, an index is a statistical indicator for a change in value of a securities market. It is computed by weighting the prices of all stocks or bonds within a certain sector in order to describe that market and compare it to others.
The first stockmarket index is commonly attributed to Charles Dow, who launched the Dow Jones Industrial Average in 1896.
There are many types of indices, for the analysis of all kinds of different markets and sectors.
Types of indexes:
- A global market index, like S&P Global 100 or MSCI World, both of which include stocks from multiple regions. The regions may be defined geographically (Europe, LATAM, EMEA, etc) or by levels of development, industrialisation or income (developed markets, etc).
- National indices represent the performance of one nation’s stockmarket, and are usually used as an indicator of the investor sentiment on the state of its economy. Every major economy has a particular index that takes that role, such as the S&P 500 in the US or FTSE 100 in the UK.
- There are regional indices, like the FTSE Developed Europe Index or FTSE Developed Asia Pacific Index.
- Also, there are specialised indices that track the performance of specific sectors of the market: for example the Wilshire US Real Estate Investment Trust Index, which tracks companies in the American real estate market; or the Nasdaq Biotechnology Index, following firms within the biotechnology industry.
Related Articles:
Category: Financial Glossary