what is a price weighted index 
a price weighted index is a stock index in which each company included in the index makes up a fraction of the total index proportional to that company s share stock price per share in its simplest form adding the price of each stock in the index and dividing by the total number of companies determines the index s value a stock with a higher price will be given more weight than a stock with a lower price and will thus have a greater influence on the index s performance understanding a price weighted indexin a price weighted index a stock that increases from 110 to 120 will have the same effect on the index as a stock that increases from 10 to 20 even though the percentage move for the latter is far greater than that of the higher priced stock higher priced stocks exert a greater influence on the index s or the basket s overall direction to calculate the value of a simple price weighted index find the sum of the share prices of the individual companies and divide by the number of companies in some averages this divisor is adjusted in order to maintain continuity in the event of stock splits or changes to the list of companies included in the index price weighted indexes are useful because the index value will be equal to or at least proportionate to the average stock price for the companies included in the index this allows the construction of indexes that will track the average stock price performance of a specific sector or market one of the most popular price weighted stocks is the dow jones industrial average djia which consists of 30 different stocks or components in this index the higher price stocks move the index more than those with lower prices thus the price weighted designation the nikkei 225 is another example of a price weighted index other weighted indexesin addition to price weighted indexes other basic types of weighted indexes include value weighted indexes and unweighted indexes for a value weighted index like those in the msci family of strategy indexes the number of outstanding shares is a factor to determine the weight of each stock in a value weighted index the price of the stock is multiplied by the number of shares outstanding for example if stock a has five million outstanding shares and is trading at 15 then its weight in the index is 75 million if stock b is trading at 30 but only has one million outstanding shares its weight is 30 million so in a value weighted index stock a would have more say in how the index moves than stock b in an unweighted index all stocks have the same impact on the index no matter their share volume or price any price change in the index is based on the return percentage of each component for example if stock a is up 30 stock b is up 20 and stock c is up 10 the index is up 20 or 30 20 10 3 i e the number of stocks in the index other types of weighted indexes include revenue weighted fundamentally weighted and float adjusted all have their positives and negatives depending on the investor s goals and market knowledge 