Capped Index

AAA

DEFINITION of 'Capped Index '

An equity index that has a limit on the weight of any single security. Thus, a capped index sets a maximum percentage on the relative weighting of a component that is determined by its market capitalization. The rationale behind a capped index is to prevent any single security from exerting a disproportionate influence on an index.

INVESTOPEDIA EXPLAINS 'Capped Index '

For example, in Canada, the S&P/TSX Capped Composite index that is maintained by Standard & Poor's restricts the weighting of any component to a maximum of 10%, regardless of its market capitalization. The S&P/TSX Capped Composite index was introduced in 2002, subsequent to the rise and fall of Nortel Networks, which at its peak accounted for almost one-third of the total market capitalization of all stocks on the former TSX-300 index.

RELATED TERMS
  1. Index

    A statistical measure of change in an economy or a securities ...
  2. Index Arbitrage

    An investment strategy that attempts to profit from the differences ...
  3. Dow Jones Industrial Average - ...

    The Dow Jones Industrial Average is a price-weighted average ...
  4. Composite Index

    A grouping of equities, indexes or other factors combined in ...
  5. Market Index

    An aggregate value produced by combining several stocks or other ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value ...
Related Articles
  1. Are Equity-Indexed Annuities Right For ...
    Savings

    Are Equity-Indexed Annuities Right For ...

  2. 2 Indexes That Help Assess Market Behavior ...
    Active Trading Fundamentals

    2 Indexes That Help Assess Market Behavior ...

  3. Which Mutual Fund Style Index Is For ...
    Mutual Funds & ETFs

    Which Mutual Fund Style Index Is For ...

  4. Long-Term Investing With Equity Index ...
    Bonds & Fixed Income

    Long-Term Investing With Equity Index ...

Hot Definitions
  1. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  2. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  5. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  6. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
Trading Center