Weighted Average Market Capitalization

What is the 'Weighted Average Market Capitalization'

The weighted average market capitalization is a stock market index weighted by the market capitalization of each stock in the index. In such a weighting scheme, larger companies account for a greater portion of the index. Most indexes are constructed in this manner, with the best example being the S&P 500.

BREAKING DOWN 'Weighted Average Market Capitalization'

For example, if a company's market capitalization is $1 million and the market capitalization of all stocks in the index is $100 million, then the company would be worth 1% of the index. The alternative to weighting by market cap is a price-weighted index such as the Dow Jones Industrial Average.

RELATED TERMS
  1. Price-Weighted Index

    A stock index in which each stock influences the index in proportion ...
  2. Equal Weight

    A type of weighting that gives the same weight, or importance, ...
  3. Weighted

    A mathematical process by which figures and/or components are ...
  4. Capitalization-Weighted Index

    A type of market index whose individual components are weighted ...
  5. Weighted Average

    An average in which each quantity to be averaged is assigned ...
  6. Capped Index

    An equity index that has a limit on the weight of any single ...
Related Articles
  1. Markets

    Understanding Capitalization-Weighted Indexes

    A capitalization-weighted index is a market index whose individual components are weighted according to their market capitalization.
  2. ETFs & Mutual Funds

    The Pros and Cons of Indexes

    Learn about the advantages and disadvantages of stock indexes and passive index funds. Discover how there is an opportunity cost to using index funds.
  3. Markets

    Top Reasons Stock Indices Could Be Biased

    Do the owners of the large stock indices (McGraw Hill Financial, CME Group, and News Corp) have incentive to pick stocks to put in the index that are "shiny" as a marketing ploy? And if so, wouldn't ...
  4. ETFs & Mutual Funds

    An Introduction To Stock Market Indexes

    Investopedia explains the five most talked about indexes and what makes them all different.
  5. Investing

    What's a Market Index?

    A market index combines several stocks to create one aggregate value that’s used to measure a market’s or sector’s performance.
  6. Investing

    The One ETF To Own The Top Internet Company Stocks

    Grab a pie of booming online businesses in one shot! Here is the one ETF that lets you own stock in the top Internet companies.
  7. ETFs & Mutual Funds

    Strategies For Determining The Market's True Worth

    Learn the strengths and weaknesses of passive and active management when trying to uncover the overall market's worth.
  8. ETFs & Mutual Funds

    What is an Index?

    An index is a statistical means of calculating a change in an economy or market.
  9. Investing

    Weighted Average Cost Of Capital (WACC)

    Weighted average cost of capital may be hard to calculate, but it's a solid way to measure investment quality
  10. Investing

    What's a Price-Weighted Index?

    A price-weighted index is a stock index in which the proportion of each member’s price-per-share determines its influence.
RELATED FAQS
  1. How is the value of the S&P 500 calculated?

    The S&P 500 is a U.S. market index that gives investors an idea of the overall movement in the U.S. equity market. The ... Read Answer >>
  2. What does the S&P 500 index measure and how is it calculated?

    Learn about what exactly the S&P measures and why it's used by market participants as a tool to understand the broader stock ... Read Answer >>
  3. What is a capitalization-weighted index?

    Learn about a capitalization-weighted index and how to calculate the value of a capitalization-weighted index through a simple ... Read Answer >>
  4. What are the pros and cons of using the S&P 500 as a benchmark?

    Learn about the advantages and disadvantages of using the S&P 500 as a benchmark for portfolio performance, and understand ... Read Answer >>
  5. Is it possible to invest in an index?

    First, let's review the definition of an index. An index is essentially an imaginary portfolio of securities representing ... Read Answer >>
  6. What's the difference between the Dow Jones Industrial Average and the S&P 500?

    The major difference between these two indexes is that the Dow Jones Industrial Average (DJIA) includes a price-weighted ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center