# How to calculate the stock market index? Calculation method of market index

When many people buy investment products, they will always hear or understand the content of the market index. As an important reference and investment tool in the investment market, the index occupies an important market position. Because of its wide coverage and stable index, the index is favored by many investors. So how to calculate the market index? The following small series for you to introduce the calculation method of the market index.

(1) Arithmetic stock index method. The arithmetic stock price index method takes a certain trading day as the base period, multiplies the reciprocal of the number of sample stocks by the sum of the ratio of the price of each sample stock in the complaint period and the price of the base period, and then multiplies the index value of the base period

Arithmetical stock price index = 1 / number of samples collected ×∑× (price in the presentation period / price in the base period) × index value in the base period

(2) Arithmetic average method. Is to calculate the arithmetic mean of all the samples in this stock index.

(3) weighted average method. Is to calculate the weighted average value of all samples in this stock index. Usually, the weight is allocated according to the total market value of each stock at that time or the total number of listed shares.

The stock price indexes of most countries in the world are calculated by the weighted average method, such as the standard & Poor's index of the United States, the Paris Stock Exchange Index, the Commerzbank index of Germany, the stock price index of Commerzbank of Italy, the 300 stock price indexes of Toronto and the Tokyo Stock Exchange index.

(4) Divisor correction. In order to overcome the shortcomings of the simple average method, Dow Jones company invented a method to calculate the average stock price in 1928. The core of this method is to find a constant divisor to correct the change of the total stock price caused by paid capital increase and stock split, so as to truly reflect the average stock price level. The specific method is as follows: take the total new stock price after the above changes as the numerator and the average of the old stock price as the denominator to calculate a divisor, and then remove the total stock price in the complaint period, and the average stock price obtained is called the Dow modified average stock price. The calculation formula is as follows:

The Dow divisor = the new total stock price after the change / the average of the old stock price

Dow modified average stock price = total stock price in the complaint period / Dow divisor

(5) Cardinal number correction method. The purpose of this law is that due to the paid capital increase, the listing of new shares or the cancellation of listing, the number of listed shares will change and the total stock price will change. In order to make the counting caliber of the complaint period and the base period basically consistent, the stock price of the base period must be adjusted accordingly. The method is to calculate the ratio of the total current price before and after the change of the number of listed shares, and multiply the total stock price of the original base period by this ratio to obtain the modified value of the base period. The formula is as follows:

The modified value of the base period = the total stock price of the original base period × the total stock price after the change of the number of listed shares / the total stock price before the change of the number of listed shares.