Weighted Average Market Capitalization

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Weighted Average Market Capitalization

Describing an index in which the average price is weighted for market capitalization. For example, if an index consisting of 10 stocks is weighted for market capitalization, this means that the average price of the stocks will move more when the stocks with higher market capitalization move. Most indices use weighted averages so that "smaller" values do not affect the index inordinately. This helps correct for the fact that averages tend to be affected by extreme values. Most indices weight for market capitalization. A prominent example is the S&P 500. See also: Weighted average price.