But each index and average is constructed a little differently and provides a different profile of the market. For instance, some include thousands of securities and give a broad picture of the market, while others are narrow measures. Some are price-weighted, giving more emphasis to changes in the prices of higher priced stocks in the index, while others are capitalization-weighted. Still others are equal-weighted and count an increase in the value of one stock as much as the increase in the value of another. Some are computed using a geometric average, while others are computed using an arithmetic average.
While these may sound like technical details, they can have a profound effect on index results — and what you can learn from them.
