TYPES OF INDEXES
Most of the commonly followed stock market indexes are of the following two types: Market capitalization weighted index or price weighted index. In a market capitalization weighted index, each stock in the index affects the index value in proportion to the market value of all shares outstanding.
A price weighted index is one that gives a weight to each stock that is proportional to its stock price. Indexes can also be equally weighted. Recently, major indices in the world like the S&P 500 and the FTSE-100 have shifted to a new method of index calculation called the "Free float" method. We take a look at a few methods of index calculation.
