subject: Stock Market Indices Interpretation [print this page] Let's look into the various ways of calculating stock market indices:
Market capitalization based index calculations: Such method uses the market capitalization of the companies which are weighted by their effect on the index.
Price weighted index calculations: Under this method all stocks are given equal importance and stocks are included at their quoted price.
Fundamentally based index calculations: This method uses accounting aspects like book value, revenue, profits, cash flow etc of the companies. Such method usually does not track the market price of the stocks of companies.
Attribute weighted index calculations: This latest method assigns weight to the stock in the index depending on the score it gets relative to the value attributes that define the criteria of a specific index.
