Index
A composite of prices designed to measure changes in a market or an economy. A financial market index such as the S&P500 is a portfolio of securities, which measures changes in the value of the portfolio. Stock market indices are normally weighted by the market capitalization of their constituents; a movement in the shares of a large company will have a greater effect on the index than a movement in a smaller one. A capitalization-weighted index is created by measuring the value of a group of securities at a certain date and representing it by 100. Subsequent changes are perceived by comparison with the base number. The percentage change is more important that numerical value of the index. Indices are also used to measure changes in an economy. Amongst the most common are inflation indices such as retail price indices (RPI) and consumer price indices (CPI). They are calculated using the prices of a range of goods and services that most people are deemed to use. Each item is weighted according to its importance.