Index

An index is a construction, not a fact about the market: its rules on eligibility, weighting and rebalancing determine what it measures, and different rules produce different answers about the same market. Most major indices are weighted by free-float market capitalisation, which means the largest companies dominate and the index describes a value-weighted average rather than a typical stock. Index levels are not comparable across indices, since each has its own arbitrary base value and date. A published index is also not investable on its own — replicating it costs money, which is the gap an index fund must manage.