Stock Index
A stock index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market, and to compare the return on specific investments. Stock market indices may be classified in many ways. A ‘world’ or ‘global’ stock index — such as the MSCI World or the S&P Global 100 — includes stocks from multiple regions. Regions may be defined geographically (e.g., Europe, Asia, Latin America) or by levels of industrialization or income (e.g., developed markets, emerging markets).
History of Stock Index
The first stock index was created by Charles Dow in 1884. Dow created the Dow Jones Industrial Average (DJIA) to measure the performance of the industrial sector within the United States. The DJIA is the oldest and most widely followed index in the world. The DJIA is composed of 30 large publicly traded companies based in the United States. The index is price-weighted, which means that stocks with higher prices have greater weight in the index.
In the 1950s, the first international stock index was created. The Morgan Stanley Capital International (MSCI) index was created to measure the performance of stocks in the international markets. The MSCI index is composed of stocks from 23 developed countries. The index is market-cap weighted, which means that stocks with higher market capitalizations have greater weight in the index.
Comparison Table
| Index | Composition | Weighting |
|---|---|---|
| DJIA | 30 large US companies | Price-weighted |
| MSCI | Stocks from 23 developed countries | Market-cap weighted |
Summary
A stock index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks and is used by investors and financial managers to describe the market and compare the return on specific investments. The first stock index was created by Charles Dow in 1884 and is known as the Dow Jones Industrial Average (DJIA). The first international stock index was created in the 1950s and is known as the Morgan Stanley Capital International (MSCI) index. For more information about stock indices, visit websites such as Investopedia, Yahoo Finance, and Bloomberg.
See Also
- Market capitalization
- Index fund
- Exchange-traded fund
- Stock exchange
- Stock market
- Portfolio
- Diversification
- Beta
- Volatility
- Risk
