Security Market Indexes

Security market indexes: what an index is, how price return and total return indexes are calculated over one and many periods, how providers choose the target market, constituents and weighting method (price, equal, market-cap, float-adjusted and fundamental), how indexes are rebalanced and reconstituted, what investors use them for, and the main equity, fixed-income and alternative-investment indexes and their quirks.

1. 1. What an index is: value, price return and total returnAn index is a paper portfolio that stands for a market; its price return version tracks only price changes, while its total return version also reinvests every dividend and coupon, so it pulls further ahead over time.Video · 6 minFree13 min
2. 2. Building an index: target market, constituents and weightingBuilding an index is like building a portfolio: choose the market to represent, pick the securities, decide how much of each to hold, and then decide when to rebalance and when to review the list.12 min
3. 3. Price-weighted and equal-weighted indexesA price-weighted index lets the highest-priced share dominate and needs a new divisor after every split; an equal-weighted index gives every stock the same slice, which overweights small companies and drifts away from equal weights as soon as prices move.Video · 5 min14 min
4. 4. Market-cap, float-adjusted and fundamental weightingMarket-cap weighting holds each stock in proportion to its market value, ideally counting only freely tradable shares; fundamental weighting uses size measures that ignore price, which tilts the index towards value stocks and works against momentum.Video · 5 min14 min
5. 5. Rebalancing, reconstitution and what indexes are used forRebalancing resets weights to the index's rule and reconstitution changes which securities are in it; both create turnover, and the finished index then serves as a sentiment gauge, a market proxy, an asset-class proxy, a benchmark and a model portfolio.13 min
6. 6. Types of equity indexesEquity indexes come as broad market, multi-market, sector and style indexes; each slices the stock market a different way, and the slicing rules differ between providers.11 min
7. 7. Fixed-income, commodity, real estate and hedge fund indexesOutside equities, indexes face harder problems: bond markets are huge, illiquid and dealer-priced; commodity indexes hold futures and pick their own weights; real estate trades rarely; and hedge funds choose whether to report at all.14 min