ABSTRACT
The market-value or capitalization-weighted method aggregates security prices by the number of shares outstanding. While not the first publisher to employ this technique, the market-value weighted method was adopted by Standard & Poor's in the construction of its US stock indices in 1923. The world's leading indices monitor and implement maintenance adjustments on a more frequent basis. The universe of eligible securities is determined through a process of elimination and index constituents are selected strictly based on their aggregate market value. Stock market indices that rely on a selection rather than the entire population of securities generally operate pursuant to a set of rules or guidelines governing the inclusion of markets, market segments and the individual securities. Securities are selected to reflect the economic and industry characteristics of the overall market or market segments. The procedures applicable to the maintenance of an index are just as important as the criteria applied to the selection of its constituents.
