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.

Related Terms View All
  • Auction Market
    Though most of the trading is done via computer, auction markets can also be operated via...
  • Best Execution
    Let's assume you place an order to buy 100 shares of Company XYZ stock. The current quote...
  • Book-Entry Savings Bond
    Savings bonds are bonds issued by the U.S. government at face values ranging from $50 to...
  • Break-Even Point
    The basic idea behind break-even point is to calculate the point at which revenues begin...
  • Calendar Year
    If Company XYZ starts its fiscal year on January 1 and ends its fiscal year on December...