Weighted Average Market Capitalization

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DEFINITION

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.

INVESTOPEDIA EXPLAINS

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.


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