A:

F

ew stock market indices are as misunderstood as the Nasdaq Composite Index. Due to the burst of the dotcom bubble in 2000 and the ensuing plummet of the Nasdaq, many investors assume that the Nasdaq focuses primarily on tech stocks. However, nothing could be farther from the truth.

The Nasdaq Composite, published by the National Association of Securities Dealers Automated Quotations, is comprised of approximately 3,000 common stocks and other investments that trade on its system. A complete listing of every security traded on the Nasdaq can be found on the official Nasdaq website under "Index Descriptions".

The "other" investments that may be included in the Nasdaq Composite are: American Depository Receipts, which represent companies traded on foreign exchanges, Real Estate Investment Trusts (REITs), and Limited Partnership interests. Since the Nasdaq Composite is composed virtually of every stock that trades on its system, the underlying components of this index can change weekly, or even daily, as new issues come to market and old issues are delisted.

Similar to the S&P 500, the value of the Nasdaq Composite is calculated on a market capitalization-weighted basis. This means that companies with more shares outstanding and/or a higher price per share will contribute to an increasing proportion of the index's return.

This question was answered by Ken Clark.

RELATED FAQS
  1. Why is the Nasdaq more heavily weighted to tech stocks than other stock exchanges?

    Learn how the Nasdaq attracts technology companies due to its focus on using advanced financial technology to improve the ... Read Answer >>
  2. What are the most important equity market indexes?

    Discover the most important equity market indexes. Stock market indexes are tools to evaluate the performance of the stock ... Read Answer >>
  3. What are the advantages and disadvantages of listing on the Nasdaq versus other stock ...

    Discover some of the primary advantages and disadvantages that exist for companies listed on the Nasdaq exchange rather than ... Read Answer >>
  4. How do you compare the Dow Jones Industrial Average (DJIA) and the Nasdaq?

    The Dow Jones and Nasdaq work in different ways to signal market trends. Learn which is best for you. Read Answer >>
  5. Why is the Nasdaq more volatile than the NYSE?

    Learn about the stocks that are traded on the Nasdaq stock exchange, and discover the Nasdaq's relative volatility level ... Read Answer >>
Related Articles
  1. Insights

    Understanding NASDAQ

    NASDAQ is an acronym that stands for the National Association of Securities Dealers Automated Quotation system.
  2. Investing

    How Nasdaq Continues To Innovate

    For centuries, a stock market was a physical arena where buyers and sellers traded shares. Then the NASDAQ opened and changed everything.
  3. Insights

    What's The Difference Between The Dow And The Nasdaq?

    The way people throw around the words “Dow” and “Nasdaq” makes them seem synonymous with “the market.” But there are important differences.
  4. Investing

    Strategies To Trade The Nasdaq Index

    The Nasdaq is by far the best-known technology index in the world, and there are plenty of strategies to trade on the Nasdaq using ETFs and options.
  5. Financial Advisor

    Is Your Investment Manager Skilled Or Lucky?

    Being familiar with composite presentations will help you better assess the quality of an investment manager's performance.
  6. Investing

    The 2000 Nasdaq vs. The 2015 Shanghai Composite: How History Repeats Itself

    The Shanghai Composite is in a correction, and it's very similar to the NASDAQ of 2000.
  7. Insights

    The NYSE and Nasdaq: How They Work

    Learn some of the important differences in the way these exchanges operate and the securities that trade on them.
RELATED TERMS
  1. NASDAQ Global Market Composite

    An index made up of stocks that represent the Nasdaq Global Market. ...
  2. FTSE NASDAQ 500 Index

    Introduced in July 2005, the FTSE NASDAQ 500 is one of four indexes ...
  3. Nasdaq SmallCap Market

    The Nasdaq equity market for companies that have relatively small ...
  4. Nasdaq 100 Index

    An index composed of the 100 largest, most actively traded U.S ...
  5. Interdealer Quotation System

    The exchange system comprised of the Nasdaq (National Association ...
  6. NYSE Composite Index

    An index that measures the performance of all stocks listed on ...
Hot Definitions
  1. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  2. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  3. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  4. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center