How Stock Indexes Work
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Turner Eric
Mar 18, 2011, 12:54:18 AM3/18/11
to MASTER LIMITED PARTNERSHIPS
In an index, each of the constituent stocks contributes a percentage
of the total value. This is its weight in the index. In a price-
weighted index, the price of the stock is the only determinant of this
weight. Therefore, a highly-priced stock of a small company can have a
larger weight than a lower-priced stock of a large company. In such a
situation, price movement of even a single stock will heavily
influence the value of the index even though the dollar shift is less
significant.
For more information, visit : http://www.alerian.com
of the total value. This is its weight in the index. In a price-
weighted index, the price of the stock is the only determinant of this
weight. Therefore, a highly-priced stock of a small company can have a
larger weight than a lower-priced stock of a large company. In such a
situation, price movement of even a single stock will heavily
influence the value of the index even though the dollar shift is less
significant.
For more information, visit : http://www.alerian.com
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