Investing 101: What are stock market indices?

Julie Brownlee, Fsp Invest, 01 Apr. 2014

Tags: stock market indices, what are stock market indices, stock market, stock market indexes, indices, index, johannesburg stock exchange, jse indices,



If you ever see the financial news on the TV, you’ve probably heard the news reader telling you how certain stock market indices performed that day. They either moved up or they moved down. But what is a stock market index? And what does it tell you? Let’s take a closer look…



Stock market indices measure performance

Stock market indices are basically a measurement of performance, Gareth Stokes in Fear, Greed and the Stock Market explains. Without having indices (or indexes) to look at, you’d have to look at every share on the stock market to work out how the market performed.

Charles H Dow and Edward Jones formed the first stock market index back in the early 1900s, the Dow Jones Averages. Investors still use this index today!

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Both Dow and Jones realised that investors and the public needed a way of easily seeing how the stock market had performed on a particular day.

A number of different shares make up stock market indices. These shares have a weighting according to their size.

The Johannesburg Stock Exchange’s indices

There are several different indices that cover the performance of the Johannesburg Stock Exchange. Let’s take a look at some of the most popular and see what they measure…

The JSE All Share Index:
This is basically all the shares on the Johannesburg Stock Exchange.

The Top 40 Index:
This is the performance of the largest 40 companies. The performance of this index is usually very similar to that of the All Share due to the weighting principle. In other words, these shares account for a large weighting of the All Share.

The Platinum Index:
This is all the platinum producers on the exchange.

The Industrials Index:
This is all the industrial shares on the exchange.

If you have a look at the financial pages of a newspaper, you’ll see the wide array of indices available. You can see at a glance how they performed the previous day.

So there you have it, what stock market indices are.


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