The method of measuring any section of the stock market is particularly known as a stock market index or in other words an equity index. Mainly financial services firms and news are the main source of citing many indices. The performance of many portfolios is generally benchmarked by many indices. The status of the stock market of any nation is generally assessed through the levels of certain indices. These indices also represents the overall economic strength of that nation.
The method, which is typically used to determine the price of any index, becomes the reason of indices classification. Each component stocks price, in a price-weighted index, is the only consideration of determining the index value. It means the the value of the index can get affected heavily even with the price movements of the stock of a single company. The size of the company does matter a lot as a whole. Therefore, smaller price movement of a smaller company may not influence index more heavily compare with a smaller price movement of a large company.
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