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- An index is a group of stocks representing a particular segment of a market, or in some cases the entire market.
- Index construction is useful for measuring performance of a portfolio, risk and return determination of a stock, comparison of stock with sector or board index, short term technical behavior of markets and to study investor sentiment in the economy.
- Stock indexes are generally constructed into three types: price-weighted, volume-weighted and unweighted price indicator series.
- Stock indices are the convenient indicators to measure the pulse of secondary market. An ideal stock index should represent the changes in the overall stock price and it should indicate the price changes of a typical share. A stock index is generally based on a sample of stocks. For example, the BSE Sensex consists of 30 stocks.
- Global equity indexes are designed to track the performance of concerned region or global equity market as a whole and for comparison of indexes' performance with that of domestic index.