A capitalization-weighted index can also be referred to as a market-value-weighted index. This is a form of a stock market index whose different elements are weighted according to the total market value of the outstanding shares.

The method for calculating the price-weighted average is to add the stock prices together and then divide this by the number of shares in the average. Itâ€™s an intricate and carefully balanced method in that if the [market-cap] rises and the stock price rises it will attain a bigger weighting in the index, however, a decrease in stock price and market cap will mean that the weighting of that specific stock in the index will drop.

**Key takeaways:**

- A capitalization-weighted index can also be referred to as a market-value-weighted index.
- The method of calculating the price-weighted average is to add the stock prices together and then divide this by the number of shares in the average.
- There are various globally traded weighted indices such as S&P 500, Dow Jones Industrial Average, Nikkei 225, Nasdaq 100, FTSE 100, CAC 40 & Dax 50.