Scroll down to see a list of Internet sites that will provide an education about stock market indexes.
The main reason why we need to know about indexes is to gain a quick picture of the health of the stock market. What we need to know is that indexes have individual characteristics because of the stocks that make up the index. For example, the Dow represents large companies, the Nasdaq represents technology companies. Many of the indexes are weighted so that the movement of a small number of stocks significantly affects the movement of the index.
There are numerous indexes. The best known are the Dow Jones Industrial Average, the Standard and Poor’s 500 and the Nasdaq Composite. Other popular U.S. indexes include the Standard and Poor’s 100, Nasdaq 100, Russell 2000 and the Dow Jones Wilshire 5000 Total Market Index.
There are also many indexes that measure the health of market sectors, including the Dow Jones Transportation Index, Standard and Poor’s Mid Cap 400, and the Standard and Poor’s Small Cap 600.
To represent their own style of investing more closely some investors create their own index. They list a number of stocks that closely match their own investing style in a portfolio tracker. The value of the portfolio serves as a personal index.
The composition of the indexes change over time as the fortunes of the component companies move up and down, or companies are taken over by others. It pays to watch the additions and deletions from the major indexes because companies added to an index attract more attention from the institutional investors so the share price usually rises between the announcement date and effective date of the change. Announcements of changes are widely reported in the financial news and can be found at the Internet sites for the indexes listed below.
Because badly performing stocks are dropped from an index and replaced by stocks that perform well, the rise in value of an index over the years does not truly represent the rise in value of the market. A fact that is often overlooked by those who use indexes to show how the stock market has risen over decades.
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http://www.djindexes.com/ has about a dozen research publications that explain the indexes. For example there is a 24-page paper on "U.S.Stock Indexes: Is There a Best Choice", which compares indexes. It also has data for many indexes including China Indexes. Dow Data goes back to the year 1895.
http://www.globalfindata.com/ has a complete list of stocks in the Dow Jones Industrial Average since its inception in the 1880’s and a guide to the best and worst investment periods.
http://www.indexarb.com/ shows the components and weighting of each of the major indexes in chart form. It also shows the dividend yields for each index and analyzes the capitalization of the S&P500 and the Nasdaq 100.
http://www.index-day-trading.com/ has useful tutorials on indexes and using volume for trading.
http://www.invest1to1.com/ has, in the University section, an article titled All About Benchmarks that provides basic information about the major indexes – the Dow Jones Industrial Average, the S&P500, the Nasdaq Composite, the Russell 2000, the Wilshire 5000, and the MSCI EAFE (Morgan Stanley Capital International Europe, Australasia, Far East index).
http://investmentexecutive.com/ reported research by Standard and Poor’s that showed that the size of the increase in price of a stock added to the S&P500 has been declining recently. In the three periods 1998 – 2000, 2000 – 2002 and 2003 – 2004 increases reduced from 8.9% to 3.6%.
http://www.marketvolume.com/ has information about the popular indexes, like the Dow Jones Industrial Average, the S&P 500, and the Nasdaq 100.
http://www.nasdaq.com/ has information about indexes in the Market Activity section. There is a lot of information there. Also see http://www.nasdaqtrader.com/ for trading information, http://www.nasdaq-100.com/ for information about the Nasdaq 100 index tracking stock QQQQ, and http://www.nasdaq.com/newsroom for Nasdaq related news.
http://www.russell.com/ relates to Russell's 21 equity indexes. There is data, information on the constitution of the indexes, articles and information on the Exchange Traded Funds that track the Russell indexes.
http://www.spdrs-trading-system.com/ has a history of the S&P 500 index. It also has information about Standard and Poor's Depository Receipts, SPDR's, pronounced Spiders, which track the performance of the S&P 500 index. The symbol for SPDR is SPY and it is one of the safest ways to invest in the U.S. stock market.
http://www2.standardandpoors.com has dozens of Standard and Poors indexes, including those of many different countries.
http://www.wilshire.com/ explains the history, characteristics and purpose of Wilshire's five families of indexes.
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