An index is a statistical measure used to track changes in financial markets or the prices of goods. A stock index specifically measures the price movements of selected stocks in a market through a weighted average. It provides investors with a tool to evaluate market performance and compare returns on investments.

1. Examples of Indices

2. A stock index is a statistical indicator that
measures changes within a securities market. It
is computed from the prices of selected stocks
(typically a weighted average). It is a tool used
by investors and financial managers to describe
the market and to compare the return on
specific investments.
Stock Index

3. The media refer to stock market indices daily, reporting on movements in the FTSE,
Dow Jones and others.
You have come across indices before which are used to measure different things:
e.g. Retail Price Index (RPI) and Consumer Price Index (CPI) both measure
Stock Market Indices

4. Buy
Sell
Buy
Sell
Buy
Sell
Double top ‘M’
Double bottom ‘W’
Much Higher Numbers –
reflects a number of
points, not share price
The line is not as erratic in its movements
compared with the share price charts – it
provides a snapshot of overall share price
movements in the FTSE 100 companies
Share Indices

5. The FTSE 100 is an example of a stock index.
Stock indices do the following:
 Provide a snapshot of how share prices are performing in a particular stock market, or
across several markets.
 Measure price movements in markets across a number of different types of stocks.
 Calculate the aggregate price movement of its targeted stocks on a daily basis,
 Provide a single figure for ease of comparison.
Stock Market Indices
Benefits of share indices
 Allows investors to gauge the overall performance of the market (not
easy to do by looking at individual share prices)
 A stock index will smooth out anomalies and provide a consistent picture
of the mood across the market.
 Provide a benchmark for investors - assess whether their portfolios of
shares are doing better (outperforming) or worse (underperforming) than
the market in general.