Price-weighted index
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A price-weighted index is a stock market index where each constituent makes up a fraction of the index that is proportional to its component, the value would be:[1]
- Adjustment Factor = Index specific constant "Z" / (Number of shares of the stock * Adjusted stock market value before rebalancing)
A stock trading at $100 will thus be making up 10 times more of the total index compared to a stock trading at $10.
The Dow Jones Industrial Average and Nikkei 225 are examples of price-weighted stock market indexes.
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