The Main Economic Indicator share indices are targeted to be national, all-share or broad, price indices and use the closing daily values for the monthly data, normally expressed as simple arithmetic averages of the daily data. What each share price index measures is determined by its construction. A major distinction is between a price index, which measures changes in the market capitalisation of the basket of shares in the index, and a return index, which adds on to the price index the value of dividend payments (and assumes they are reinvested in the same stocks). A price index measures how the value of the stocks in the index is changing, a return index tells the investor what their “return” is, i.e. how much money they would make as a result of investing in that basket of shares. Other terms for “return” are “performance” and “accumulation”.
Other components that determine what an index measures are: Geographic coverage, Market coverage, Sector coverage, Threshold for inclusion in the basket, and Corrections for “anomalies” (e.g. splits, market consolidations). There are literally thousands of stock market indices available world-wide because indices are tailored to meet the specific needs of investors and other market observers. They may cover specific industries (e.g. engineering goods), sectors (e.g. telecom, energy or health care), whole markets (e.g. all shares indices) and may be local, national, multinational or even global. They can be calculated and distributed as frequently as on a “real-time” basis of every few minutes but are at least available on a daily basis. In recent years there has been a tendency for stock exchanges to co-operate on index methodology with major financial houses such as Standard & Poor’s, FTSE, Dow-Jones. When an agency sponsors index calculation, its name is often included in the official index name. The statistical methodologies used to calculate the indices are well developed.
The compiling agency usually makes detailed information available on its website. Links are included in the country/subject texts where available. Investment in ICT has largely eliminated the need for physical proximity for trading, and the trend is now for markets to merge cross-nationally (e.g. Euronext).