Markets · 6 pages · 12 min

How price-weighted and cap-weighted indexes differ

Price weighting follows the share price, while cap weighting follows the company's market value.

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From the opening

A price-weighted index gives each member influence in proportion to its share price, so a high quote moves the average more than a low quote. A capitalization-weighted index gives influence in proportion to market value, which is price times shares outstanding, so a large company moves the index more than a small one. The opening covers high prices sway price weights, large firms sway cap weights, and a split hits only one.

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Inside

High prices sway price weights
Large firms sway cap weights
A split hits only one
Equal weight is a third recipe
Where the idea stops applying
A distinction worth keeping

Sources

Price-weighted index
Capitalization-weighted index

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How price-weighted and cap-weighted indexes differ

From the opening

Inside

Sources

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