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Stock index

Stock indexAn indicator of the value of a stock portfolio at a particular point in time

A stock index is computed, updated and published on each trading day by stock exchanges, banks, consultancy firms, the business press, and other financial experts. It is calculated for individual market segments, sectors or groups of stocks.

Stock indices are calculated as both price and performance indices using the Laspeyres or Paasche formulas. The Deutsche Börse indices are capital-weighted, i.e. the weighting of a stock is measured according to the total capital of the stocks contained in the index. At the chaining date in June 2002, Deutsche Börse converted index calculation to a free-float weighting basis. Now, only the freely tradable portion of a company's capital stock in one stock category is used to calculated its weighting in an index. Only the larger and more liquid stock category respectively is taken into account for the selection index.

Trading volume and market capitalisation, on the basis of the number of shares in free float, are the selection criteria for admission to a stock index.

If the development of a stock index is tracked over time, it provides information on the performance of the underlying stock portfolio. A stock index is therefore a useful indicator for market sentiment, the state of the economy, and trends in individual sectors. It can also serve as the underlying instrument or benchmark for certain financial instruments, such as stock index options.

Some examples of German stock indices are DAX®, the FAZ stock index and the EURO STOXX®.

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