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Created on 12.04.2018

What is a stock market index?

A stock market index documents the performance of a selection of share prices. As if in a basket, various shares are selected according to certain criteria and their performance is analysed. An index also serves as a comparative value.

Share indices can generally be classified as follows

  • Performance indices (total return) are those where the value of the indices is calculated using both the share prices and the dividend payouts of the shares. This category includes the Swiss Performance Index (SPI).
  • Price indices (price return) are calculated based only on the share prices included in the index. Dividends are not taken into account. The Swiss Market Index (SMI) falls into this category. This contains around 20 of the largest Swiss companies weighted by market capitalization.

In addition, the following classifications are possible

  • Geographic indices contain the share prices of companies from particular countries or regions.
  • Sector indices list the shares of companies in particular industries.

Market capitalization

Indices based on a company’s market capitalization (market cap) differentiate between companies based on their market capitalization:

  • Very high market capitalization (“blue chip”)
  • Medium market capitalization (“mid cap”)
  • Low market capitalization (“small cap”)

The value of the stock market index is determined for every day on which shares are traded on a stock exchange. This has two functions: on the one hand, it provides information about the mood of a market at a particular time. On the other, investors obtain an overview of stock market developments.

The main indices worldwide are, for example, the DAX in Germany, the Nikkei 225 in Japan, the Dow Jones or the NASDAQ in the USA, the Hang Seng in Hong Kong, the Euro Stoxx 50 in the eurozone and the FTSE 100 in the UK.

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