Price-Weighted Index

A “price-weighted index” is a stock index where the higher the price per share of a particular stock, the more influence it has on the index as a whole. The Dow Jones Industrial Average is a price-weighted index, for example.

To see how this works, let’s say we’ve got two stocks. The first is worth $12.50 per share and the second is worth $178 per share. Now let’s say stock #1 increases to $25 per share and stock #2 increases to $190.50 per share. The price of stock #1 just doubled, and that’s a pretty big deal. But in terms of our price-weighted index, it’s not as big of a deal as stock #2’s increase, because stock #2 is still worth more money.

And remember, higher share price = more index influence.