Price-weighted

An index that adds share prices, so a high-priced company sways it regardless of size — and a share split changes the answer with no economics behind it.

Where you will meet it

Price-weighted appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Contrast indexes weighted by price with those weighted by market capitalisation
  CFA Level I · Equity Investments

  “A price-weighted index adds share prices and divides by a divisor, so a high-priced share sways it regardless of the company's size — and every split forces the divisor to be reset.”

• Work out values and returns for indexes weighted by price, by market capitalisation and equally
  CFA Level I · Quantitative Methods

  “A price-weighted index sums share prices and divides by a divisor, so high-priced stocks dominate and the divisor must be adjusted after splits to keep the index level unchanged.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with P · Glossary