Free-Float Methodology

AAA

DEFINITION of 'Free-Float Methodology'

A method by which the market capitalization of an index's underlying companies is calculated. Free-float methodology market capitalization is calculated by taking the equity's price and multiplying it by the number of shares readily available in the market. Instead of using all of the shares outstanding like the full-market capitalization method, the free-float method excludes locked-in shares such as those held by promoters and governments.

Calculated as:

Free-Float Methodology


INVESTOPEDIA EXPLAINS 'Free-Float Methodology'

The free-float method is seen as a better way of calculating market capitalization because it provides a more accurate reflection of market movements. When using a free-float methodology, the resulting market capitalization is smaller than what would result from a full-market capitalization method.

Free-float methodology has been adopted by most of the world's major indexes, including the Dow Jones Industrial Average and the S&P 500.

.

RELATED TERMS
  1. Nasdaq

    A global electronic marketplace for buying and selling securities, ...
  2. Weighted Average Market Capitalization

    A stock market index weighted by the market capitalization of ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding ...
  4. Dow Jones Industrial Average - ...

    The Dow Jones Industrial Average is a price-weighted average ...
  5. Standard & Poor's 500 Index - S&P ...

    An index of 500 stocks chosen for market size, liquidity and ...
  6. Price-Weighted Index

    A stock index in which each stock influences the index in proportion ...
Related Articles
  1. Which Mutual Fund Market Cap Suits You?
    Mutual Funds & ETFs

    Which Mutual Fund Market Cap Suits You?

  2. Market Capitalization Defined
    Insurance

    Market Capitalization Defined

  3. The New World Of Emerging Market Currencies
    Forex Education

    The New World Of Emerging Market Currencies

  4. The ABCs Of Stock Indexes
    Economics

    The ABCs Of Stock Indexes

Hot Definitions
  1. Debit Spread

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

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

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

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

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  6. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
Trading Center