Stock market index

The stock market index (plural stock exchange indices, stock market indices '; English stock exchange index ) is an economic indicator , at each trading day from all or selected market prices of on a stock exchange traded effects is determined.

General

The key figure represents the market development on a stock exchange , the more trading objects ( stocks , bonds , investment certificates ) are included in it. Its purpose is to reproduce a stock market trend that can result from a comparison of several trading days. A stock market index reflects the price development better than just a share, so that it can also serve as an economic indicator (“stock market barometer”). Since different types of securities can develop quite differently, a distinction is made in the individual stock exchange segments between stock index , bond index and other indices. Every major stock exchange has at least one index of its own, which reflects the price trend on this stock exchange.

species

The Frankfurt Stock Exchange publishes several stock indices, of which the DAX is the best known. It contains the 30 most important German stocks with the highest stock exchange turnover . Its counterpart for bonds is the German pension index for federal securities . The Vienna Stock Exchange determines the Austrian Traded Index (ATX), the Swiss Exchange the Swiss Market Index (SMI). The London Stock Exchange knows the FTSE 100 Index , the Paris Stock Exchange the CAC 40 . The Dow Jones Industrial Average represents the stocks on the New York Stock Exchange . In contrast to the “Dow Jones”, the DAX contains weighting based on market capitalization .

In the US, "broad", a distinction ( English broadbased ) equity indices such as the S & P 500 and "narrower" ( English narrow based ) stock market indices such as the S & P 100 . The representative function of indices increases the more trading objects are recorded in the index.

detection

As with any index, a base year (or base day) is first determined. The stock exchange prices quoted in this base year are calculated as an average value and set equal to 100. If the prices increase in the following years (on the following days), the stock exchange index rises above 100, if the prices fall, the index falls below 100 accordingly. The stock exchange index is determined on every trading day.

The stock exchange index is determined in the following way:

{\ displaystyle {\ text {X}} = {\ frac {\ sum _ {i = 1} ^ {n} w_ {i} \ cdot I_ {i}} {\ sum _ {i = 1} ^ {n } w_ {i}}}}

.

It means:

{\ displaystyle X}

: relative achievement of the target value of the stock market index

{\ displaystyle I}

: relative achievement of the target value of the stock exchange price

{\ displaystyle n}

: Number of stock exchange prices included in the index

{\ displaystyle w_ {i}}

: Weighting factor of the stock exchange price.

The more stock exchange prices are included in the stock exchange index, the more representative is its informative value for the respective stock exchange or its stock exchange segment. With the increasing weighting of individual stock exchange prices in the index, the risk increases that their change will disproportionately influence the change in the stock exchange index.

economic aspects

The market analysis on stock market indices, in the context of fundamental analysis and / or the chart analysis done. Both include these indices in their analysis concept as part of the evaluation of several key figures and company data . The stock market index should represent the price changes that take place on a stock exchange every day. If the price of just one stock changes and the others stay the same, this has very little or no effect on the index. However, if a large number of stocks move in the same direction, the index also changes. Price fluctuations of higher weighted DAX stocks have a greater impact on the index development than price fluctuations of lower weighted stocks. Stock market indices also have an operational function because they serve as the basis for futures ( index futures ) and options (such as options on a stock index - futures contract ). and index funds (ETF) are invested on them.

The reporting of the mass media mentions the stock market index as a representative of the development on the entire stock or bond market . The index is an important benchmark for the performance of a portfolio, especially for institutional investors such as investment funds . If a portfolio or a single share outperforms the stock market index, it is an outperformer , otherwise it is an underperformer ; if there is synchronism, there is a market performer.