Stock Market Index

What is the importance of stock market index?

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An index is a way of grouping securities. A, say, health care index will group multiple companies in the health care sector and track them simultaneously according to the definition of that index.

The importance is that it enables researchers to draw focused and exchangeable data. If one researcher developed some theory on the health care industry some other researcher may find it to not hold true simply because of how they each define the health care industry, whereas, if the theory was based on the health care industry as measured by a given index then there would be no questions as to the definition of that industry.

They also serve as the bases for index funds, which likewise enable investor to focus their funds on a given, calculable, portion or sector of the market.

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