stock index investment & finance definition

An index whose value represents the combined values of an assortment of underlying stocks, which may number from a few dozen stocks to thousands of stocks. A well-known stock index is the Dow Jones Industrial Average (DJIA), which comprises the stocks of 30 large and well-established U.S. companies. There are hundreds of stock indices for the United States and foreign markets. Some of the popular foreign stock indices are France’s CAC 40 and the U.K.’s FTSE 100.

Stock indices include a specified number of stocks. A base period is selected and the index is given a value for the period, such as 100. Future movements up and down in the prices of the stocks push the index number up or down. Guidelines for establishing the stock index are selected by the exchange.