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What is Market Average?

A market average is the general level of prices in a stock market as expressed by a basket of frequently traded stocks.

How Does Market Average Work?

A market average, best exemplified by the Dow Jones Industrial Average (DJIA) and the S&P 500 Index, is based on a basket of stocks, not all the stocks that trade on any given day.

Market averages can be price-weighted or market-weighted, depending on the methodology specified by the company that publishes the particular market average.

Why Does Market Average Matter?

The prices of stocks in a given market vary in terms of industry and frequency of trading, and it is not practical to account for every registered stock. A market average provides an overview of market activity that speaks to investor perceptions and economic productivity.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.