Arithmetic Index


DEFINITION of 'Arithmetic Index'

An index of securities that uses an arithmetic sum to determine changes in the index without taking the relative size of the securities into account. An arithmetic index of stocks does not incorporate weightings based on market capitalization, price, or any other metric, but merely calculates the raw changes in each component, then divides the sum by the number of index components.

Also known as an "unweighted index".

BREAKING DOWN 'Arithmetic Index'

Most stock indexes are market-cap weighted, which means that the largest companies will exert a larger influence on the index that the smallest. The Standard & Poor's 500 Index and the Nasdaq-100 are both market-cap weighted, while the Dow Jones Industrial Average (DJIA) is price-weighted. The Value Line index is calculated arithmetically, although few other major indexes fail to account for the size of their components in some way.

  1. Geometric Mean

    The average of a set of products, the calculation of which is ...
  2. Capitalization-Weighted Index

    A type of market index whose individual components are weighted ...
  3. Arithmetic Mean

    A mathematical representation of the typical value of a series ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  5. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
  6. Capital Markets

    Capital markets are markets for buying and selling equity and ...
Related Articles
  1. Bonds & Fixed Income

    How Now, Dow? What Moves The DJIA?

    Find out how this index tracks market movements and where it falls short.
  2. Mutual Funds & ETFs

    Benchmark Your Returns With Indexes

    If your portfolio is always falling short, you may not be making an apples-to-apples comparison.
  3. Investing Basics

    3 Key Signs Of A Market Top

    When stocks rise or fall, the financial fate of investors change, as well. There are certain signs that can reveal a stock’s course, and investors don’t need to be experts to spot them.
  4. Investing

    Asset Manager Ethics: Rules Governing Capital Markets

    The integrity of the capital markets needs to be kept at utmost importance for all investors. This article shows how to maintain the integrity while investing.
  5. Investing News

    Understand the SEC Rules on Equity Crowdfunding

    The SEC's adoption of equity crowdfunding rules, initiated under the JOBS Act, enables small investors to invest in companies that show early potential.
  6. Investing Basics

    Tax-Efficient Strategies For International Clients

    In a globalized world, international clients seek to diversify holdings by accessing U.S. markets. Creative strategies will help optimize tax positioning.
  7. Investing Basics

    What Happens in a Haircut?

    One meaning of haircut is the difference between prices at which a market maker can buy and sell a security.
  8. Investing Basics

    Understanding the Spot Market

    A spot market is a market where a commodity or security is bought or sold and then delivered immediately.
  9. Investing News

    What Shook the U.S. Stock Market Today?

    What was looking as a decent year for US Stock market has suddenly gone off track as the Dow Jones Industrial Average plunged 531 points in the week ending August 23, 2015.
  10. Investing Basics

    Learn About the New York Stock Exchange

    The New York Stock Exchange (NYSE) is nicknamed the “Big Board,” and for good reason. It’s the largest, oldest and best-known stock exchange in the world.
  1. How do I find mutual funds that track indexes?

    The two best sources for finding index funds are Fidelity Investments and Vanguard.Of the 57 index funds in investment research ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What is the difference between shares outstanding and floating stock?

    Shares outstanding and floating stock are different measures of the shares of a particular stock. Shares outstanding is the ... Read Full Answer >>
  4. What is the difference between market risk premium and equity risk premium?

    The only meaningful difference between market-risk premium and equity-risk premium is scope. Both terms refer to the same ... Read Full Answer >>
  5. What is the difference between the QQQ ETF and other indexes?

    QQQ, previously QQQQ, is unlike indexes because it is an exchange-traded fund (ETF) that tracks the Nasdaq 100 Index. The ... Read Full Answer >>
  6. What is the difference between an investment and a retail bank?

    The activities and types of clients for an investment bank versus those for a retail bank highlight the primary difference ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Real Estate Investment Trust - REIT

    A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges ...
  2. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  3. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  4. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  5. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!