A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is an imaginary portfolio of securities representing a particular market or a portion of it. Each index has its own calculation methodology and is usually expressed in terms of a change from a base value. Thus, the percentage change is more important than the actual numeric value.
Stock and bond market indexes are used to construct index mutual funds and exchange-traded funds whose portfolios mirror the components of the index.
Taobiz explains Index
The Standard & Poor's 500 is one of the world's best known indexes, and is the most commonly used benchmark for the stock market. Other prominent indexes include the DJ Wilshire 5000 , the MSCI EAFE and the Lehman Brothers Aggregate Bond Index .
Because, technically, you can't actually invest in an index, index mutual funds and exchange-traded funds allow investors to invest in securities representing broad market segments and/or the total market.
