What are Stock Market Mid Cap and Small Cap Indexes?
Stock market indexes are groups of companies that share some characteristic. They may all be in the same industry, they may be the most important companies to the broader economy and/or stock market, or they may be diverse, sharing no characteristic other than their size. Stock market small-cap and mid-cap indexes are based on the size of the company in the index.
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Stock Indexes
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There are many different indexes that investors choose to follow based on what part of the market they wish to track. The different indexes are not governmental or official stock market constructions; indexes are put together and listed by private companies. Each index company has a different set of rules that govern which stock will be included in the index.
Market Capitalization
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In the case of small- and mid-cap indexes, the criterion for entry is based on the size of the company (stock). The cap in small cap stands for capitalization. Market capitalization is simply the share price multiplied by the number of shares of stock outstanding. Market cap, for publicly-traded companies is one measure of the size of a company.
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Small Cap
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In the small cap index market, there are several indexes that are most often quoted. The Russell 2000 is a famous index of small cap stocks, it is comprised of usually 2000 (sometimes more) companies. The average and median capitalization in 2010 are $1.06 billion, and $440 million, respectively. The Standard & Poor's, commonly known as S&P, 600 is another small cap index of 600 United States companies with capitalization from $250 million to $1.2 billion.
Mid Cap
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Both the Russell and S&P have a mid cap index. The Russell mid cap index is called the Russell Midcap. It comprises of 800 companies with average and median capitalization of $6.99 billion and $3.71 billion in 2010. The S&P mid cap is called the S&P 400, and is comprised of 400 United States companies with capitalization from $850 million to $3.8 billion.
Stock Index Rationale
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While there are other small and mid cap indexes, the idea main behind capitalization weighted indexes is to divide the market into different groups that accurately represent the size of what one thinks of as a small- or mid-sized publicly-traded company. The absolute capitalization of a small company will change over time, and there are different opinions about the acceptable range for mid sized. There is, however, more than likely an index that will track the stock market based on whatever size company one wants.
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