Unfortunately, I do not know how Standard & Poor creates the stock market index. I do not know what would be a good index or a weak one. Can anyone either explain this concept or direct me to a website that would explain this?
In the stock market world, you need a quick way to compare the movement of the market, up and down, from day to day, from month to month or from year to year. An index is just a benchmark or yardstick expressed as a single number that makes it possible to do such comparing.
How are indexes calculated?
Index calculation is a very interesting topic, because indexes are calculated in different ways. It is important for investors to understand the calculation methods involved for the indexes they refer to, because the calculation method has a profound impact on results. In simple terms, we want to know what is being measured.
Most stock indexes give more weight to larger companies. These indexes are referred to as capitalization-weighted (capitalization is simply the total market value of the outstanding shares of a company's stock). Since larger companies are weighted more ...
This explains the concept of Stock market index by explaining Standard and Poor's index