Stock Index is a summary of one or more stock markets and it may represent one or more stock markets. The performance of the stock market/s is summarised in the index. The Stock Index can also represent more than one market in different countries.

Graph. Trend of Stock Index Standard & Poor’s 500 Composite that represents the NYSE and NASDAQ stock markets.

From the graph, it is possible to observe that the index accurately summarises the market’s behaviour. The indices need to perfectly reflect the entire market with a restricted number of representative stocks. In this way, a well-constructed index is representative of the market’s benchmark. The index S&P 500 COMPOSITE in the graph is a weighted index of the top 500 companies in two stock markets: the NYSE and the NASDAQ. It was created for the first time in 1926, even if between 1928 and 1957 it was known as S&P 90.
Another well-known stock index that represents the world stock markets is the Morgan Stanley Composite Index - MSCI World. This index has top stocks from each stock market in the world
in its basket. The trend of this index represents the weighted trend of the entire world stock market.
Differently from a single stock, the stock index is an index number. The stock index can also be traded in the market like any other asset. The return of the index is calculated by multiplying the change in the index number by the index divisor number. The index formula is different for each index, and it takes into account the stock split, as well as the stock dividend.

BECCHETTI  L., CICIRETTI  R. and TRENTA U., 2007, Modelli di Asset Pricing I: Titoli Azionari, in Il Sistema Finanziario Internazionale, Michele Bagella, a cura di, Giappichelli, Torino

Editor: Rocco CICIRETTI

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