While there are indexes that track micro cap stocks, there are few indexes tracking nano caps. Although definitions vary, a nano cap stock generally has a market capitalization of less than $50 million and a micro cap has $50 million to $300 million. A company's market cap is simply its share price multiplied by the number of shares outstanding.

The Russell Micro Cap™ Index (created in June 2005 by Russell, which is well-known for its small cap Russell 2000) is made up of stocks with a market cap of $55 million to $500 million. While this does go a little above the market cap of micro caps and into small caps, this index is still an accurate measure of the overall returns of micro cap stocks in the market. However, this index excludes stocks trading below $1, which are generally found on the over-the-counter bulletin board (OTCBB) and/or the pink sheets.

The Dow Jones-Wilshire U.S. Micro Cap Index is another index that can be used to measure the returns of micro caps in the market. This index tracks around 2,500 stocks in the Dow Jones Wilshire 5000 Index. Despite its name, the Dow Jones Wilshire U.S. Micro Cap Index not only tracks micro caps but also small caps, having broadened its capitalization selection criteria to between $100 million and $1 billion, with an average of about $300 million. It contains around 300 companies and differs from the other two micro cap indexes in that it screens its stocks based on fundamentals. This means that it tries to select higher quality small caps, which are likely to have a longer life cycle.

To get indexes that track the OTCBB and pink sheets, which have limited historical data, you'll generally need to sign up for subscription-based services. OTCBB and pink sheet stock are not represented in the above indexes due the risk that the companies listed there will have limited life cycles, which diminishes the quality of any index comprised of only these stocks.

Therefore, while there are indexes that include micro cap stocks, it's important to realize that they cover the smallest stocks from the major exchanges and tend to exclude OTCBB, pink sheets and stocks below $1.

(For further reading, see The Lowdown On Penny Stocks.)

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