Why Are Stocks Riskier than Bonds?
Stocks and bonds are the two basic asset classes (types of investments). This page explains why stocks are generally considered riskier than bonds. **You can lose all in either stocks and bonds.** The common sense understanding of risk is the likelihood of losing part or the whole of our investment. When you buy a stock, in the worst case the company will go bankrupt and the shares will become worthless. [more ...]
Why Are Some Stocks Worth More than Others?
Why does one stock cost $250, while another only $5? What makes stock prices different? This page explains what determines stock prices and why some stocks are worth more than others. **Two things that determine stock price.** The other word commonly used for stocks - shares - better describes what they are: They are small fractions (shares) of a company. Stock price - the price of one share in a company [more ...]
Why Does a Stock Go Down on Ex-Dividend Date?
Before the ex-dividend date, the shares include the right for the next dividend payment (they are "cum-dividend"). On and after the ex-dividend date, the shares no longer include this right (they are "ex-dividend"). This is why the share price often (but not always) goes down on ex-dividend date. **Before and after ex-dividend date.** Anyone who is holding shares at the end of the day just before the [more ...]
Value Weighted Stock Index: Construction, Problems, and Adjustments
This page explains how a value weighted stock index is constructed, the biases and practical problems this calculation method can cause, as well as possible adjustments to address these problems. **Stock index calculation methods.** Value weighting (also known as market cap weighting or capitalization weighting) is one of the three commonly used methods for stock index calculation (the other two methods [more ...]
Price Weighted Stock Index Calculation and Biases
This page explains how a price weighted index works - how it is calculated and what implications the calculation method has on the relative effects of individial stock price moves on the index value. **Equity index weighting methods.** Stock indices perform important functions in the global investing universe. They serve as benchmarks of equity markets and therefore as good indicators of economic situation [more ...]