What is a Stock Market Index?

June 9, 2012 | By Fitz | Filed in: General Information, Investing.

Hey Guys, Can someone explain to me what does Stock market index means? In layman’s term sana šŸ™‚ Thanks!



2 Responses to “What is a Stock Market Index?”

  1. Fitz says:

    Hi MondC, I’ll try to explain that using an analogy.

    Assume that the stock market is a classroom, and the price of the stocks is equal to the grades of the students.

    Everyday, the students take a quiz. And everyday, the teacher gets the average quiz score of the students. That average grade of the classroom is the stock market index.

    So basically, the stock market index is a measure of the performance of a group of stocks, not all but usually just the major ones.

    The Dow Jones Industrial Average, for example, is a stock market index of 30 major American companies. The DJIA Wikipedia entry lists those companies.

    In the Philippines, the PSE Composite Index or PSEi, is likewise composed of thirty (30) listed companies. The selection of companies in the PSEi is based on a specific set of criteria. There are also six additional sector-based indices.

    Knowing the trend of stock indices is a good way to know if the stock market, in general, is good or bad.

  2. MondC says:

    Thanks Sir Fitz. Now let me see if i got it correctly, stock index is the average performance of 30 major companies. Am i correct?

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