A price-weighted index is a stock index in which each company included in the index contributes a certain portion of the total index to that company’s stock price per share. In simple words, the value of the index is determined by adding the price of each stock and dividing it by the total number of companies available in the index.
PWI – Sum of companies stock price in the index Number of companies in the index
In a price-weighted stock index, each company’s stock is weighted by its price per share. The index is the average of the stock prices of all companies. It gives more weight to high-value stocks in terms of their index value and their contribution to index change. The price-weighted index can be used to track the average price of a stock in a given market or industry.
