What Is a Stock Exchange Index?

A stock exchange index tracks the value of stocks on a specific exchange.

A stock exchange index is a stock index for a particular stock exchange. The stock exchanges provide for the orderly trading of stock shares. The indexes associated with the specific stock exchanges provide a single tracking number of the price and value changes of all of the stocks listed on that exchange so investors have a way to quickly measure stock market performance.

Function

A stock index tracks the value changes of a select list of stocks. The indexes use stock prices or the market capitalization of component stocks and mathematical factors to derive a number investors can use to gauge the changes in the market. Stock indexes can range from broad-based stock coverage to a more focused small number of stocks. For example, the S&P 500 index tracks the value of 500 stocks and the Dow Jones Industrial Average--DJIA--includes just 30 blue chip stocks. Stock indexes also exist that are specific to the individual stock exchanges.

Identification

There are two major stock exchanges in the United States. The New York Stock Exchange--NYSE--is the oldest stock exchange in the country and that largest in the world by the total market capitalization of stocks traded there. The Nasdaq stock exchange--founded in 1970--was the first exchange to do all of its stock trading electronically. These two stock exchanges handle the majority of stock trading in the United States.

Significance

Each of the two stock exchanges has its own stock index that tracks the value of all the stocks trading on each exchange. The value of NYSE stocks is tracked by the NYSE Composite Index. This index can be tracked with the symbol NYA. The NYSE Composite Index includes about 2,000 securities. Nasdaq stock exchange values are followed by the Nasdaq Composite Index, which uses the symbol IXIC. The Nasdaq Composite includes almost 3,000 securities.

Function

Both of the stock exchange indexes include all of the common stocks listed on each of the exchanges. The two stock exchange indexes also include the values of any American depository receipts (ADRs), real estate investment trusts (REITs) and tracking stocks that trade on the exchanges. Closed-end funds, exchange traded funds (ETFs) and preferred shares are not included in the index calculations.

Considerations

The two widely followed stock market indexes, the DJIA and S&P 500, both include stocks listed on both stock exchanges, the NYSE and Nasdaq. The NYSE Composite and Nasdaq Composite indexes track only the stocks listed on their respective indexes. The composite indexes provide better tools if an investor wants to compare the results on the two major stock indexes.

References

• NYSE: NYSE Composite Index
• Investopedia: What is an Index?
• Investopedia: NASDAQ Composite Index