Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Market Average

What it is:

A market average is the general level of prices in a stock market as expressed by a basket of frequently traded stocks.

How it works (Example):

A market average, best exemplified by the Dow Jones Industrial Average (DJIA) and the S&P 500 Index, is based on a basket of stocks, not all the stocks that trade on any given day.

Market averages can be price-weighted or market-weighted, depending on the methodology specified by the company that publishes the particular market average.

Why it Matters:

The prices of stocks in a given market vary in terms of industry and frequency of trading, and it is not practical to account for every registered stock. A market average provides an overview of market activity that speaks to investor perceptions and economic productivity.

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