Calculation
The ASX 200 is capitalization-weighted, meaning a company's contribution to the index is relative to its total market value i.e. share price x number of tradeable shares. The ASX 200 is also float adjusted, meaning the absolute numerical contribution to the index is relative to the stock's value at the float of the stock.
Although the calculation starts with a sum of the market capitalisation of the constituent stocks, it's intended to reflect changes in share price, NOT market capitalisation. Therefore a fudge factor called the "Divisor" is used to ensure that the index value only changes when stock prices change, not whenever market capitalisation changes. For example, if a company increases its market capitalisation by issuing new shares, the Divisor is adjusted so that the ASX 200 index value does not change.
Read more about this topic: S&P/ASX 200
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