Equity Index is a statistical indicator of changes in the market value of a certain group of shares or stocks. Sometimes it can be referred to as a Stock Index.

There are several types of equity indices. Here you may see the two main branches:

1. Broad based equity indices which are dealing with the entire market.
2. Specialized indices which are dealing with a particular industry

Properties of indices:

  • They are composed for the measurement of financial values such as interest rates, inflation, etc.
  • They can be stated as benchmarks of evolution
  • They measure the price performance by their standardized methodology
  • They can be performed in a passive manner as a low cost way to achieve the profit positions of popular indices
  • An investor can not directly invest in indices. Investors have to buy index funds first.
Equity indices are calculated in two different ways as price and return index. The difference between price and return indices occurs with dividend payment. Dividends payments are not taken into consideration in price indices. However, in return indices; it is assumed that the dividends paid are reinvested in the stock market.

A stock market index is the value that contains certain stocks and is calculated by applying equity index values (into a formula) with different weights. As a result, it varies according to the weight of each share in the index value.

Equity indices measure the price movement of stock and determine the general trend of the stock market.

The most important global equity indices in terms of trading volume are Dow Jones, Nasdaq, S&P500, FTSE and DAX.