Price-Weighted Index

Price-weighted index

An index giving a greater influence to higher-valued stocks by weighting all component stocks by their price.

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Price-Weighted Index

An index that tracks a number of securities in which price changes in stocks that already have higher prices affect the index's price changes more than other securities. For example, suppose an index tracks three stocks: A, B, and C. If A has a higher price than B and C, an uptick in A will be more likely to result in an uptick in the index as a whole (depending on how much more weighted it is). Price weighted indices are less common than capitalization-weighted indices, but the Dow Jones Industrial Average is a prominent example.

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Price-Weighted Index

What Does Price-Weighted Index Mean?

A stock index in which each stock influences the index in proportion to its price per share. The value of the index is generated by adding the prices of each of the stocks in the index and dividing them by the total number of stocks. Stocks with a higher price will be given more weight and therefore will have a greater influence on the performance of the index.

Investopedia explains Price-Weighted Index

As an example, assume that an index contains only two stocks: one priced at $1 and one priced at $10. The $10 stock is weighted nine times higher than is the $1 stock. Overall, this means that this index is composed of 90% of the $10 stock and 10% of the $1 stock. In this case, a change in the value of the $1 stock will not affect the index's value by a large amount, because that stock makes up such a small percentage of the index. A popular price-weighted stock market index is the Dow Jones Industrial Average. It includes a price-weighted average of 30 actively traded blue-chip stocks.

Related Terms:
• Dow Jones Industrial Average—DJIA
• New York Stock Exchange—NYSE
• Stock Market
• Standard & Poor's 500 Index—S&P 500
• Volume Weighted Average Price