One of the most important information for all the investors is the denominated stock exchange index that includes securities conveniently selected and pondered.

Elaboration of a Stock Exchange Index

The stock exchange index tries to reflect what has happened on the market. Its an indicator of the main shares that are quoted on the stock exchange market. In general terms, the index number is an instrument that compares, in time and space, the behavior of a magnitude. In the case of the stock exchange market, this index pretends to reflect the evolution of the quotations in the course of time.

To elaborate a stock exchange index:

First you must select the securities that will compose a representative sample of the market, the selection is usually done in function of the capitalization of the securities on that market (value of the company according to the quotation of their shares at the stock exchange market), of the trading frequency and of the volumes of the negotiations. Through this samples you will obtain the same results as if you would have done an exhaustive analysis of all the securities quoted at the market.

In second place, you fix the average that you will give to each of the securities. Due to the great variety of companies (according to size, volume, contracting frequency, etc.) it is necessary to equilibrate or to compensate the different securities. With this step, the pretension is too adequate the influence of each of the securities elected according to its importance on the market.

The most used types of averages are that of stock exchange capitalization (that can be the capital admitted to quotation of the total capital of the association) and the volume of contracting (than can be the nominal or the effective).

As a last step, you will define its formulation, reflected through:

In second place, you fix the mathematical expression. You can use geometric averages or arithmetical averages.

The most common indexes are:

The Laspeyres Index: for calculating the variations of the securities you will compare their effective annual value with their effective value moment that is taken as base, averaging it in function of the business figure of the base moment.

The Passche Index: it ponderates in function of the business of the moment in which you calculate the index.

The Fisher Index: it estimates taking an average of both business figures: that of the moment that is taken as base and that of the moment in which you calculate the index.