Markets · 6 pages · 12 min

How an index is a recipe

An index is a published rule for which securities count and how their prices are combined.

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From the opening

An index is a recipe: a written rule for which securities are included, how each is weighted, and when the list or the weights are updated. The published level is what you get by applying that recipe to market prices, not a company and not a pile of cash. The opening covers rules choose the members, weights mix the prices, and the level is an output.

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Inside

Rules choose the members
Weights mix the prices
The level is an output
A fund is a separate copy
Where the idea stops applying
A distinction worth keeping

Sources

Index methodology
Price index versus total return

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How an index is a recipe

From the opening

Inside

Sources

Also on the desk